Fitbit was founded in 2007 in San Francisco, California by James Park and Eric Friedman with a vision to help people lead healthier, more active lives by empowering them with data to reach their fitness goals. Since its founding, Fitbit has become the leading global wearables brand and its products have helped users track and get motivated for everyday health and fitness. Fitbit offers an innovative lineup of popular activity trackers including the Fitbit Surge, Fitbit Blaze, Fitbit Charge 2, Alta HR, Alta, Fitbit Flex 2, Fitbit One and Fitbit Zip, as well as an accessory line featuring the Fitbit Ionic smartwatch, Fitbit Flyer wireless headphones and Fitbit Aria and Fitbit Aria 2 Wi-Fi Smart Scales. Fitbit products are carried in 46,000 retail stores across 78 countries around the globe. Fitbit’s platform delivers personalized experiences, insights, and guidance through leading software and interactive tools. The success of these functionalities has grown the Fitbit social community to over 25 million active users in 2017. The International Data Corporation (IDC) forecasts that the wearables market will nearly double by 2021, leaving the door open for Fitbit to grow and continue its market leading footprint in this category.

Founders

James Park, who serves as the CEO and President of Fitbit, was a Harvard dropout with a computer science background. He was also co-founder of two tech startups, Windup Labs and Epesi Technologies, prior to founding Fitbit. His second startup, Windup Labs, an online photo-sharing company, was acquired by CNET Networks in 2005. James then went on to serve as the director of product development at CNET. James’s diverse background in tech startups also included a stint at Morgan Stanley where he built trading software and developed trading strategies for the bank.

Eric Friedman serves at the CTO of Fitbit. He was a co-founder of both Epesi Technologies and Windup Labs with James Park, and served as an engineer manager at CNET following Windup’s acquisition. Eric earned both his undergraduate and masters degrees in computer science from Yale University.

Neither Park nor Friedman had any manufacturing experience when they came up with the idea to create a wearable product that would change the way people move. They had attended and spoke at the TechCrunch50 conference in 2008, hoping to get 50 preorders. Instead, in one day they received 2,000 pre-orders for the product launching their idea into a true product that had real demand. They had spent several months in Asia looking at suppliers and, according to the founders, nearly crashed and burned seven times (Marshall, 2016). They were already serial entrepreneurs at this point, which gave them an advantage as they traversed the struggles of launching and perfecting a new product.

Financing History

After its founding in 2007, Fitbit went through several rounds of successful seed funding. Funding came primarily from venture capital firms to fund its high growth as an early stage fitness technology company. The founders were able to raise an initial four hundred- thousand dollars from friends and family to get their idea up and running, but the cash ran out quickly (“Fireside Chat with Fitbit”, 2017). In October 2008, Fitbit closed on its first round of Series A funding, raising $2 million in venture capital from True Ventures, SoftTech VC and several angel investors. This was the company’s first round of institutional funding and the company reportedly met with 40 VCs only to be rejected by all of them (“Fireside Chat with Fitbit”, 2017). Two years later, in September 2010, Fitbit closed a Series B funding round of approximately $9 million. As the company continued to innovate and introduce new products to the market, its need for additional capital also continued. In January 2012, Fitbit raised an additional $12 million in a Series C funding round from its existing investors Foundry Group, True Ventures, SoftTech VC and Felicis Ventures.

A little more than a year later, in September 2013, Fitbit was looking to raise additional capital at a $300 million valuation and secured $43 million in Series D funding from Qualcomm Ventures, Sapphire Ventures and SoftBank Capital, along with its existing shareholders Foundry Group and True Ventures. Only six years after its founding, the company had grown exponentially and raised nearly $66 million in seed capital to fund its operations, innovation and growth and was on its way to going public. Finally, in June 2015, Fitbit completed its Initial Public Offering (IPO) on the New York Stock Exchange at $20 per share, raising $731.5 million in capital. The IPO was comprised of 22,387,500 million new shares offered by Fitbit for a total of $447.75 million in fresh capital for the company and 14,187,500 million shares offered by the selling shareholders. This was the largest ever IPO at the time for a company dedicated to wearable technology. On its first day of trading, the shares of the company popped by 54% and again by 20% on the second day of trading on high demand and trading volume on the NYSE. It is important to note that Fitbit took advantage of the Jumpstart Our Business Startups Act (JOBS Act) of 2012 and registered as an “emerging growth company” (revenues less than $1 billion). This action eased the financial disclosure requirements, thus lowering the cost of going public. Just five months after the IPO closed, Fitbit and its shareholders once again went back to the capital markets and registered a follow-on offering in November 2015.

Unfortunately, market demand for the company’s shares had declined when the follow-on was initiated, which led to the offering being downsized from 7 million to 3 million new shares plus 14 million shares being sold down by current holders. Fitbit was still able to raise $87 million in fresh capital at a $29.00 per share offer price to use for potential acquisitions, working capital and other general corporate purposes, including research and development, sales and marketing activities, general and administrative matters and capital expenditures. Fitbit has not raised any additional equity capital since 2015, but instead has seen its stock price slide to under $6 per share as of January 2018 and its market cap drop from over $6 billion at IPO to under $1.5 billion.

Board of Directors

Fitbit’s board of directors is comprised of two insider executives and five outside directors. According to Investopedia, the average corporate board size is 9.2 members, so Fitbit may have fewer advisors on its board than its competition. It is important that the founders and company executives surround themselves by intelligent individuals who can help guide the company through its growth and a period of increased competition. Moreover, as the competition in the wearables space increased significantly since the company went public with the introduction of the Apple Watch and other comparable devices, the company will need sound advice for staying competitive. The following table shows the individuals that make up Fitbit’s current board of directors and the important reasoning behind some of their selections as a board member:

Board Member

Joined Board

Background

Reason for Board Selection

James Park

Day 1

CEO and President of Fitbit

Chairman of the board

Eric Friedman

Day 1

CTO of Fitbit

Executive Officer of the board

Christopher Paisley

January 2015

Executive Professor of Accounting at Santa Clara University. Christopher also sits on the board of 4 corporations in addition to Fitbit

Extensive board and operational experience

Laura Alber

June 2016

Current President and CEO of Williams-Sonoma

Extensive retail industry, merchandising, and operational experience

Jonathan Callaghan

September 2008

Founder and Managing Partner of True Ventures

Extensive experience with technology companies

Glenda Flanagan

June 2016

CFO Whole Foods Market

Extensive experience with leading consumer and health-related brands and expertise and background regarding accounting and financial matters

Steven Murray

June 2013

Partner at SoftBank Capital

Extensive experience with technology companies

FITBIT’S GROWTH CURVE

Fitbit’s formation in 2007 was inspired by the fitness potential of the 2006 release of the Nintendo Wii. Park theorized that exercise data could be harvested from the Wii game sessions and the resulting feedback metrics would create friendly competition among friends on metrics for health and fitness accomplishments, capitalizing on the social appeal of video game scoring. At eighteen months, the company had released its first fully functional prototype: the Fitbit tracker, which took second place at the 2008 TechCrunch50 conference. Because of the publicity of Fitbit’s second place finish among a field of respectable competition, the young company received a surprising 2,000 preorders for the $99 clip-on device. With those pre-orders, a successful track record from previous ventures and that technology award, Fitbit had gained enough credibility to attract a variety of venture capitalists (Marshall, 2016).

The first $2 million in venture capital came within two months of the TechCrunch50 publicity allowing the founders to quickly select a production location in Singapore and contract a manufacturer to build the devices. Their initial prototype, a simple pen sized pod which collected motion activity through a gyroscopic sensor like the one found in a Nintendo Wii controller, contained an integrated Bluetooth transmitter and onboard memory. Park was confident this simple design would prove easy enough to mass produce. However, the design and arrangement of the components did not translate well into mass production, causing several complete redesigns before Fitbit had a product that was compatible with an assembly line manufacturer.

Despite promises that the 2,000 preorders would be filled by December 2008, the deadline proved impossible to meet and the first Fitbit’s did not ship until September 2009, nearly two and a half years after the company’s formation and nine months behind schedule. In the remaining months of 2009, 5,000 additional units were sold. In the first year of distribution, reports of software accuracy problems surfaced, several exercise researchers found that Fitbits activity algorithms greatly overestimated the calorie burn rates, resulting in low levels of weight loss success among Fitbits earliest customers. (Koch, 2016).

Core Vertical Operations

Fitbit’s original business model disrupted a market of more sophisticated fitness devices, such as heart rate monitors from Polar, Garmin and Magellan. The fitness market of 2007 was served by complex sports watch and chest strap combinations, together they measured exercise intensity and estimated the calories burned by monitoring the electronic signals of heart rate and broadcasting the readings to a sport watch for data storage, then were uploaded by a micro USB cord to a PC for processing and storage. The technology in those heart rate monitors was evolving in 2009 as the Fitbit finally arrived on store shelves, with competing fitness trackers offering more precise GPS features to record distances traveled during exercise. Those emerging sports watches combined the distance data along with a user’s height and weight data and the resulting heart rate to provide workout intensity information and more precise calorie burn estimates (Koch, 2016).

The disadvantages of the heart rate monitor technology of Fitbit’s competitors was that the device sensors required a wide elastic belt to be worn around the chest, which many users found awkward and uncomfortable and regardless of how well these transmitters fit, they often lost signal during exercises involving twisting motions (Kerner, 2017). Fitbit’s one-piece solution simplified calorie burn estimates by utilizing pre-calculated burn rates based on physical motion, factoring in the wearer’s weight and age, which was surprisingly accurate at estimating calorie burn rates almost as precisely as the more sophisticated heart rate system. It is through this minimalistic hardware and multi-day battery life combined with sophisticated software that Fitbit chose to build their first vertical.

A third area of Fitbits design advantage was its freedom from GPS and cellular connections, the competitors in the heart rate and GPS systems were only marginally accurate at measuring distances, and in doing so they consumed considerable battery power; in addition, most the competing GPS watches required an overnight recharge for every three hours of activity monitoring. The amount of hardware and sophisticated technology in Fitbits competitors also added to the costs with a 2008 price range of between $300 and $800 per device. The combination of awkward chest straps, inconvenient recharging times and high price limited the market appeal of those original GPS fitness trackers to serious athletes and extremely health conscious consumers (Seitz, 2016).

Fitbit’s superior solution simplified fitness trackers, because the designers realized that heart rate and distance were not an absolute requirement to estimate calorie burn for casual exercises. Fitbit’s proprietary technology used a more energy efficient pedometer that detected motions generated by walking and combined that multi-sport motion sensing technology. The Fitbit software could decode the detected movements and estimate what type of exercise was being performed, and estimate the number of calories being used, the wristbands were capable of storing days’ worth of data to later be uploaded to their website for analysis and initial studies found that Fitbit’s projected calorie burn was nearly as accurate at calculating the calorie conversions made by more sophisticated hardware used by Garmin and Polar (Huang, 2016).

In comparison, Fitbit’s simplified wristband motion trackers could also easily be worn around the clock to provide a more comprehensive overview of total activity, including sleep data. The system’s energy efficiency allowed the wristbands to last up to five days between charges and the accompanying fast-chargers could recharge the Fitbit in less than an hour. The comfort and convenience of this revolutionary design combined with the simple technology allowed the devices to sell for a fraction of the price of existing fitness monitors. Fitbit’s original business model also planned for an additional revenue stream created by premium website services such as long-term data storage, charts and analysis for an annual subscription cost of $50, this plan would allow sustainable income after market saturation was eventually reached. All of these competitive advantages created a new vertical product in the health and fitness technology market and Fitbit was the first name that any consumer thought of if considering an inexpensive and simple calorie and exercise tracker (Koch, 2016).

Building substantial height to its core vertical, Fitbit pioneered a corporate wellness sales division, a move that has kept the company ahead of its competitors in the workplace wellness marketplace. These partnership’s competitive advantages have been sustained by Fitbit’s unique customization of user data to comply with the recently passed Health Insurance Patient Privacy Act-HIPPA (Seitz, 2015).

Unmet Market Need Aim & Missed Opportunities

Today, Fitbit continues to face tough competition from the Apple Watch and new fitness technology that offers precision level EKG quality heart rate hardware. Apple was quick to acquire the company who created this technology, with hopes of integrating it into a new market of heart conscious consumers. The future possibilities for the Apple Watch include sending 911 notifications if the user’s heartbeat stops or sending an alert to a user when one’s pulse indicates a warning of an oncoming heart attack. The technology could also prove valuable in solving crimes by alerting authorities the precise time and location of a murder or fatal accident. If Apple pioneers such lifesaving technology in an affordable package with a multitude of companion features, it would be safe to assume a dimmer forecast for Fitbit’s market niche (Feel the Beat of Heart Rate Training, 2017).

Competitive Advantage

Fitbit’s key early advantage was being the first wearable fitness tracker to market. James Park seized the opportunity to address the unmet market need, developing the first few models that set the bar across the market and Fitbit soon became a household name. The simplicity of the initial out of the box setup and continuous wear and convenience made Fitbit the device of choice with consumers looking for daily encouragement to reach personal health and fitness goals.

With over 25 million current Fitbit active users, Fitbit’s community has become the largest activity tracking population. New consumers are also attracted to join the Fitbit community to chat and challenge brand-loyal friends. Maintaining an active online community has been essential for Fitbit’s most recent technical developments. The more people who track their fitness, find opportunities for improvement and provide feedback, the better the next generation product can be. However, it didn’t take long for tech industry giants to catch up and surpass a device, which was once only a pedometer, with their own patented technology (Entis, 2017).

Today, Fitbit’s greatest advantage is its affordable price. Consumers can purchase a new Fitbit for only $100 compared to the lowest grade of the Garmin watch, the Forerunner, which costs $105 and the original Apple Watch priced at $179. This advantage will continue to attract people interested in tracking their health who don’t want to break the bank on GPS satellite accuracy and smartphone compatibility. As Fitbit adds new features to its product set, as done with its newest model, the Ionic, the price gap is slowly closing and the entrance of $25 rivals from several Chinese manufacturers is squeezing the profits in the market (Lashinsky, 2016).

An additional threat to Fitbit’s future growth is the entry of conventional watch companies such as Timex and Casio offering less expensive $30 competitors in addition to luxury brands such as Tag Heuer, Seiko and Ferragamo that offer integrated activity tracking sensors into conventional jewelry timepieces. The entry of the conventional watchmakers eliminated one common complaint of prospective Fitbit buyers, since many users do not choose to wear a simple rubber wristband in place of or in addition to a conventional watch (Seitz, 2016).

Unique Products and Services that Create Barriers to Entry from Competitors

Fitbit has been able to defend its position as a market leader through its design simplicity. No competitor has managed to offer novice fitness consumers a smoother transition to integrate a tracking device into their daily routines. The loyalty of Fitbit’s existing customers is reinforced by the storage of historical weight and fitness history through the supporting website and phone applications. If a current user switched brands, they would lose the integration of historical charts and graphs comparing current fitness progress to their own previous levels. Additionally, Fitbit has captured the first mover advantage in corporate wellness programs and has maintained that position through a well-developed Health Information Privacy Law department that protects its corporate clients from employee lawsuits. The base model Fitbit’s simplicity also provides competitive advantages in the corporate wellness market, since its lacks GPS and heart-rate capabilities which eases employee fears of health condition discrimination or inappropriate employee location tracking (Farr, 2016).

Home Office and Distribution

Headquartered in San Francisco, California, the company has expanded its distribution around the world after nearly a decade of development. In addition to North America, Fitbit has a presence in Latin America, Europe, the Middle East, Africa and Asia Pacific with offices in large cities including Boston, Dublin, Hong Kong, Shanghai, Seoul, Tokyo, New Delhi and Singapore.

But how does Fitbit expand markets and sell their products in other regions? Take China as an example. Fitbit formally entered the Chinese market in June 2014, following its sales footprint in 42 countries around the world. But why did Fitbit choose to enter the Chinese market in 2014? Fitbit studied the research reports on the health status of Chinese consumers.

In fact, the future health of the Chinese people deserved attention. China’s overweight population has risen from 25% in 2002 to 38% in 2012 and this number reached 50% by 2015. In terms of body fat index, on average, Chinese are not as overweight as Westerners, but the incidence of diabetes in Chinese people is as high as 11%, similar to that of the United States. Furthermore, people categorized as obese now accounts for 11% of the total population. Fitbit can help Chinese consumers become healthier, because it has a lot of measurement functions, such as the number of steps walked, steps climbed, heart rate, quality of sleep, and other personal needs involved in fitness. Fitbit’s products function for sports, diet, sleep and weight management and include peripheral systems to help people build healthier lives (Koch, 2016).

In terms of sales channels, Fitbit understands that online sales in China are very important. Following Best Buy, which uses Jing Dong is its online distributor, Fitbit products have started distribution with Jing Dong.

In addition, Fitbit’s products are now manufactured in Shenzhen, China, an area that is quickly becoming the technology manufacturing region of the 21st century (Entis, 2017). Fitbit also opened a flagship store in Tian Mall. Additionally, conventional distribution channels such as Amazon, sporting goods stores and most large department store chains all carry Fitbit products. The primary mission of the Chinese team is to broaden Fitbit’s brand awareness so that everyone knows what Fitbit is, how it helps people live a healthier and happier life.

Diversity

Unlike the wide array of applications, functionality and color provided by their wearable trackers, Fitbit is guilty of lacking diversity in the workplace. Like many tech software companies, Fitbit perpetuated a serious gender imbalance in favor of men. The firm took memorable heat from the press in 2015, as their all male Board of Directors generated attention. Even though women dominate the wearable activity tracker consumer base, Fitbit didn’t see it necessary to include females on their board or in leadership positions. The media isn’t the only source reporting misrepresentation. There is a clear consensus among employee reviews on job sites like Glassdoor and Indeed that expose the company as “extremely white-washed” with very little opportunity for growth for minorities that manage to make it in the door. Unfortunately, lack of gender and cultural representation is an all too popular trend in STEM industries and tech software companies in particular.

Recently, Fitbit has made notable strides to diversify its workforce. Two women have succeeded retired board members, while two more have moved up into Vice President roles. As for the inclusion of minorities, Fitbit has yet to demonstrate progress toward their promise to attain an ethnically proportionate workforce. We are hopeful that the firm’s welcome to fair hiring is genuine and Fitbit can create a more inclusive company and culture.

Sustainability

Today’s most successful new companies clearly published policies and strategies to achieve the Triple Bottom Line results. Like their stances on diversity and global responsibility, Fitbit’s formal policies on sustainable business practices are also non-existent. We can conceive the attention extended to healthcare and fitness, but what about the well-being of the environment? From what we can gather on Fitbit’s consumer output, their products are relatively easy to recycle. Once users decide to give up a wearable tracker or upgrade to the newest version, they can either sell or donate the device. But soon, these old technologies will become obsolete. Their capabilities will prove to be outdated and inaccurate, rendering the whole device useless. In the case that the bracelets are not in reusable condition, there is no solution to keep them from piling up in landfills.

This is where a true opportunity lies for Fitbit. Like the Apple take back system, Fitbit can receive old devices at their end of their life to disassemble into separate, reusable parts. Though this prove an initial cost for Fitbit, they can deliver a new sustainability platform to their consumers and save on usable electronic parts in the long-term.

Competitor

Apple Watch

Fitbit Ionic vs Apple Watch Series 3: Design

There’s no doubt that the Fitbit Ionic lacks a conventional aesthetic appeal; however, it won’t burn your eyes off. Recently Fitbit has been focusing on integrating style into their designs. The Ionic contrastes the Blaze’s angular look, and while we found it grew on us during testing, it’s sure to put a lot of people off.

On the other hand, the Ionic is impressive in how it crams a whole bunch of technology into a slim, lightweight case. You’ve got GPS, NFC, enough battery for four days of life and multiple sensors in a 50m waterproof square. Like the Blaze, there are three buttons on display here. You can use the display to touch your way around Fitbit OS, but if your hands are wet or if you’re in the water you may have an easier way around with some tactility.

With excellent clarity in both low light and glaring sunshine. You’ll get the Ionic in three flavors: a silver watch case with a blue/grey band, a graphite grey case with a charcoal band and a “blue orange” case with a slate blue band. But in case you’re not down with stock bands, you’ll also be able to purchase some nice accessories. There are two-toned breathable sport bands for purchase in three colorways as well as handcrafted Horween leather bands in midnight blue and cognac.

However, Apple watch keeps a design that’s nearly three years old, but the watch is easier on the eyes. Take apple watch series 3 as an example, it stills provide several models to users to choose. There are two different case sizes (38mm and 42mm), three different materials (aluminum, stainless steel and ceramic) and a whole lot of different colors. With the Series 3, you can get the LTE in the whole range, but non-LTE only comes in aluminum. There are also endless band options, from the low-end nylon and sport bands to high-end Milanese Loops and leather bands.

The major differentiator between these two is in the build. If you’re looking for something to complement every outfit in your wardrobe, and you have no problem with collecting an army of bands, the Apple Watch wins. Apple watch offers very limited styles for users to select, if people who want to have different styles smartwatch, Fitbit absolutely a better choice.

Fitbit Ionic vs Apple Watch Series 2: Battery

For as long as the Apple Watch has been around, it’s gotten about a day of battery life. Sometimes it’ll do less, but most of the time you get about a day – a day and a half to two days if you make deliberate efforts to avoid high consumption apps. With a mixture of both LTE and non-LTE features in the Series 3, you should still get around that, but using the call feature will cut it dramatically. In fact, Apple quotes only an hour of continuous talk time on the Watch.

The Ionic, Fitbit, will net people up to five days of battery life, or up to 10 hours when using GPS or playing music. That’s decent from such a slim device with as much power and many features as it has. If you have to make your decision based on battery life, the Fitbit is the clear winner here. Those extra days mean it’s much more viable as a sleep tracker too.

Fitbit Ionic vs Apple Watch Series 3: Price

The Apple Watch Series 3 has a wide range of prices, starting as low as $329 without LTE, $399 with the cellular connection, and then climbing up further depending on your choice of materials. It really depends on what you’re looking for, and how chic you’re willing to go. Bands will cost you at least $50, but again climb up into the hundreds. The Ionic, on the other hand, goes on sale for $299.99 on 1 October. You’ll also be able to purchase some bands for $29.99 to $59.99. Thus, Fitbit could easier to get access into market.

Fitbit Ionic vs Apple Watch Series 3: Fitness

There is usual standard of Fitbit fitness features, like Smart Track, VO2 Max and Sleep Stages. The Apple Watch, on the other hand, doesn’t officially recognize as many workout modes as the Ionic. For instance, it doesn’t have a mode for weights or interval training. The Apple Watch also doesn’t automatically track your workouts like the Fitbit does for running, heart beat tracking.

The Ionic is only the second Fitbit to utilize GPS, after the Surge, allowing it to match the Apple Watch in this regard. In our test we found the data of GPS to be pretty on the money, and it didn’t take too long to actually lock on either.

Finally, Fitbit is debuting Fitbit Coach on the Ionic. It’s basically a new version of Fit star, giving users a curriculum of workouts, the company says will tailor to your personal needs the more you use it. With watch IOS 4, the Apple Watch does some light personalized coaching, but it’s mostly on how to close your rings, giving Fitbit the nod here.

Fitbit Ionic vs Apple Watch Series 3: Smart features

Speaking of ecosystems, the Ionic is Fitbit’s best go yet at creating one. There’s an app store here, which Fitbit refers to as a ‘Gallery’. It debuted with just apps from Pandora, Starbucks, Strava and Accu Weather, but that has grown, adding apps from the likes of The New York Times, Nest and more. Apple has had a head start in getting developers in tow, and it’ll take a bit for Fitbit to catch up.

There’s 2.5GB of space for you to either store offline music from Pandora or from your own library. However, since the Ionic doesn’t have cellular capabilities, people can hardly stream music without your phone around.

Fitbit Pay is that company’s foray into payments, thanks to its purchase of Coin. You can take your American Express, Visa or MasterCard and link it up to Fitbit Pay, as well as debit cards from “top issuing banks”. You can link up to six payment cards to Fitbit Pay, while you have a limit of eight on Apple Pay.

While the Ionic plays some good catch up in the realm of music and NFC payments, the maturation of Apple’s ecosystem gives it a bit of a nudge here. However, as Fitbit gets more time to get major apps up and running, Apple may have a serious competitor to worry about, LTE or not, especially as more Pebble developers join Fitbit’s budding platform.

Fitbit vs Garmin

Both have their obvious strengths, but how do their wearable platforms match up? We’ve broken it down to hardware, features, apps, fitness and sports tracking to see whether it’s Garmin or Fitbit that comes out on top.

Garmin vs Fitbit The Hardware

Fitbit has actually been creeping into the world of smartwatches for a while now, with its Fitbit Blaze and Fitbit Surge acting as introductory “fitness watches”, but that doesn’t change that Fitbit got where it is today because of its fitness trackers like the Charge, Alta and Flex.

While the fitness trackers are the spine of Fitbit, its flagship is the Ionic. It’s a big riposte to the Apple Watch, with an app store that’s still growing, contactless payments and more. It’s the most fully featured Fitbit yet, as it pools together smartwatch-like features with both 5ATM water resistance and built-in GPS – features that previously were limited to select Fitbit lines. It’s also built for the future, intended to eventually have features like sleep apnea and atrial fibrillation detection.

As for Garmin, well, things are a little more complicated, such is the depth on offer. In terms of fitness trackers, the headliner is currently the Garmin Vivosport – its latest attempt to compete with Fitbit. While it’s got GPS, heart rate monitoring and VO2 Max, it’s also got a bit of a small and overly sensitive display. It also offers more basic options like the Vivofit 4 that focuses solely on those standard fitness tracking features. So steps, calories, distance and standing hours.

It’s the little things that separate these two. For example, Fitbit will generally provide users with more stylish wearables and much more customization, while Garmin’s devices tends to lean towards a masculine look. To offset this, of course, you’re given a host of physical options to choose from.

Garmin vs Fitbit: Sports Tracking

Not only can you track the likes of running, trail running, hiking, cycling, swimming, skiing, rowing, triathlon training and more, but you can also do this with the in-built GPS or Garmin’s UltraTrac, which conserves battery to keep tabs on your activity over longer distances. Heart rate is also a mainstay within the higher end of Garmin’s range, giving you ample insights into heart rate zones and heart rate variance.

Garmin vs Fitbit: Price

As always, price is something you have to consider, too. While the notable members of Fitbit’s range begin at $99.95 and max out at the $299.95 mark, that barely makes a dent in Garmin’s family. While there’s the $299.99 Vivoactive 3, if you want the latest from the Fenix or Forerunner series, your wallet will be roughly $500 lighter, and that’s a big financial commitment to consider alongside the ecosystem and general features on offer.

Garmin vs Fitbit: The Apps

Take Fitbit, which, while maybe not providing the most detailed after workout metrics in the business, still manages to offer one of the more rounded fitness platforms. This is particularly the case for beginners, who are able to dive into trends, dedicated workouts, sleep tracking and social aspects, such as linking with friends and challenges.

With the Ionic, Fitbit has also launched an app store. It was rough going at first, with only a couple of apps, but the store has gradually grown over the past couple of months, with the likes of The New York Times, Philips Hue, Yelp and more joining the fray.

The companion app, which is compatible with all Garmin devices and available on desktop, offers you a place to plan, track and review your workouts. So, whether you’re preparing for a marathon and setting monthly goals or simply looking to beat other runners’ best times in local areas, the platform has you covered.

When compared to its Fitbit counterpart, more serious exercisers will find little comparison – Garmin gives you an incredibly detailed look at your activity once you dive past its handy Snapshots, while also allowing you to upload data to the likes of Strava and understand elements like heart rate zones. Even better, Garmin has recently updated ConnectIQ to be more convenient to use for beginners, with an easy-to-digest home screen filled with your stats and metrics.

Geographic area

Headquartered in San Francisco, California, the company has expanded its distribution around the world after nearly a decade of development. In addition to North America, Fitbit has a presence in Latin America, Europe, the Middle East, Africa and Asia Pacific with offices in large cities including Boston, Dublin, Hong Kong, Shanghai, Seoul, Tokyo, New Delhi and Singapore.

But how does Fitbit expand markets and sell their products in other regions? Take China as an example. Fitbit formally entered the Chinese market in June 2014, following its sales footprint in 42 countries around the world. But why did Fitbit choose to enter the Chinese market in 2014? Fitbit studied the research reports on the health status of Chinese consumers. In fact, the future health of the Chinese people deserved attention.

China’s overweight population has risen from 25% in 2002 to 38% in 2012 and this number reached 50% by 2015. In terms of body fat index, on average, Chinese are not as overweight as Westerners, but the incidence of diabetes in Chinese people is as high as 11%, similar to that of the United States. Furthermore, people categorized as obese now accounts for 11% of the total population. Fitbit can help Chinese consumers become healthier, because it has a lot of measurement functions, such as the number of steps walked, steps climbed, heart rate, quality of sleep, and other personal needs involved in fitness. Fitbit’s products function for sports, diet, sleep and weight management and include peripheral systems to help people build healthier lives (Koch, 2016).

In terms of sales channels, Fitbit understands that online sales in China are very important. Following Best Buy, which uses Jing Dong is its online distributor, Fitbit products have started distribution with Jing Dong. In addition, Fitbit’s products are now manufactured in Shenzhen, China, an area that is quickly becoming the technology manufacturing region of the 21st century (Entis, 2017). Fitbit also opened a flagship store in Tian Mall. Additionally, conventional distribution channels such as Amazon, sporting goods stores and most large department store chains all carry Fitbit products. The primary mission of the Chinese team is to broaden Fitbit’s brand awareness so that everyone knows what Fitbit is, how it helps people live a healthier and happier life.

Factors that Contribute to Innovation

Fitbit’s products pioneered cross-brand compatibility with devices that seamlessly interface with nearly all brands of smartphones and tablets on the market, a key advantage which contributed to their early revenue growth. Today, many smart wristbands and watch products remain limited to either the Android or Apple systems, an obstacle which alienates those consumers who have both types of devices in their household, and while there are also many products that are compatible with both the iOS and Android operating systems, most fitness systems continue to ignore the Windows system users. Fitbit in comparison, has managed to build long-term loyalty by creating products that can be simultaneously operated on IOS, Android and Windows systems, so that their consumers can be assured that the Fitbit app will always be compatible with their future choices in smartphones. The founders philosophy can is evident by their open source access to fitbit servers to allow third party developers to create unique interfaces to the users data files because as founder James Park stated “In an open market, we can better cooperate with local partners. After all, they know more about the local market than we do.” (McNew, 2015).

In addition to their hardware interface versatility, Fitbit’s strategy is aimed at encouraging an open software platform, because Fitbit believes that more innovative ideas can be better exploited through openness and absorption. According to a developer, Fitbits platform has a port opening of the application works in both directions, Fitbit users cannot only send their data through Fitbit to a third-party application. If a user thinks a third-party app is great, they can also send data from a third-party app to Fitbit. For example, a male consumer is very concerned about his diet. He found a great application for eating and drinking, and he was able to import third-party applications into Fitbit via its interface. He can see and record calories on the Fitbit and so on (Schwahn, 2017).

In addition, Technology is a key factor of Fitbit innovation. Since 2009, it has released 15 different products, each of which is an update to the previous one. For example, Fitbit One, released on September 17, 2012, is an updated version of Fitbit Ultra with a more vivid digital display. It has independent clips and separate charging lines and wireless synchronization. Fitbit One is the first wireless activity tracker to synchronize with Bluetooth 4.0 or Bluetooth smart. Wireless synchronization is currently available on iOS and Android devices. Fitbit One can record several daily activities, including but not limited to the number of steps, distance, floors climbed, calories burned, active minutes and sleep efficiency (Jary, 2018).

Competitors in the same field are also important aspect of Fitbit’s innovation processes. Apple, for example, released the Apple watch series 2 in September 2016. The Apple Watch series 2 has better waterproof features, can be worn when swimming or surfing, and can support up to 50 meters of water pressure. Fitbit also took immediate steps. Fitbit Flex 2 was released on 2017, replacing the original Flex, the lowest end of the Fitbit wristband line. This is the first model that was waterproof with swimming tracking. The tracker can be worn on the wrist, pendant or carried in a pocket. When receiving a phone call or text message it provides alerts movement alarm and vibration functions (Jary, 2018).

Entrepreneurial Improvements

To stay competitive in the wearable tracker market, Fitbit needs to aggressively invest in hardware research in addition to integrating additional richness to their software platform in order to maintain consumer loyalty. Low price is no longer a guaranteed winning strategy in the fitness market, with the differences between style and performance rapidly shrinking, Fitbit needs to enter another business vertical that sets its products apart. We recommend a steady progression into a closely neighboring market of medical devices. We propose Fitbit aim to align with various medical associations to discover best healthcare practices and create apps for physical treatments fighting illness and disease. If the highly accurate heart rate monitor can identify specific exercises performed by the readings of active heart rates, why can’t it detect palpitations and arrhythmias?

Along with alerts to potential health irregularities, Fitbit should develop software to allow consumers to easily share their tracked data with their healthcare professional. Organizing this data to be analyzed by physicians can open a dialogue with patients to work toward their goals in a safe, customizable fashion. Breaking into healthcare software opens the door to high potential revenue growth, if Fitbit is the first to curb this market.

Unmet Markets and Missed Opportunities

In 2014, just four years after Fitbit’s initial distribution, advancements were made in optical heart rate monitoring technology, now Garmin and Polar are producing similar activity trackers at a similar price points. While emerging technology would soon drive additional demand for wristband fitness trackers that increases the size of the pie, it will also breed new competitors who were better positioned to capitalize on consumers with special concerns for heart health along with athletes desiring deeper training feedback metrics.

These advancements in heart rate monitoring technology allowed those serious athletes and health-conscious consumers to abandon their chest strap transmitters for a single unit, rechargeable wrist monitor that integrated real-time pulse-rates along with 24-hour wear ability (Cook, 2017). As a result, Fitbit’s previous competitive advantage of one-piece simplicity was disrupted. To compound Fitbit’s new competing technology, they failed to license the technology in time to be the first to market with the new optical heart rate and activity wearables. Instead, a new competitor, Epson, led the optical heart rate integrated monitors a full year prior.

Fitbit’s first entry in the new market, the Charge HR, missed its planned holiday 2014 release date, instead arriving late to market with an underwhelming level of fanfare in January 2015 (Seitz, 2016). The Charge HR was quickly overshadowed by an improved Apple Watch only three months later. As with many Apple products, the features of their new watch were widely publicized through a big budget marketing campaign, which was the first to educate mainstream consumers on the benefits of wrist worn heart rate monitors. However, Fitbit did outmaneuver one of its main competitors, Polar, which lagged a year behind Fitbit in its release of a pulse monitoring wristband (Lashinsky, 2016).

Today, Fitbit continues to face tough competition from the Apple Watch and new fitness technology that offers precision level EKG quality heart rate hardware. Apple was quick to acquire the company who created this technology, with hopes of integrating it into a new market of heart conscious consumers. The future possibilities for the Apple Watch include sending 911 notifications if the user’s heartbeat stops or sending an alert to a user when one’s pulse indicates a warning of an oncoming heart attack. The technology could also prove valuable in solving crimes by alerting authorities the precise time and location of a murder or fatal accident. If Apple pioneers such lifesaving technology in an affordable package with a multitude of companion features, it would be safe to assume a dimmer forecast for Fitbit’s market niche (Feel the Beat of Heart Rate Training, 2017).

Fitbit Selected for National Institutes of Health (NIH) Precision Medicine Research Program with The Scripps Research Institute (TSRI). investor.fitbit.com/press/press-releases/press-release-details/2017/Fitbit-Selected-for-National-Institutes-of-Health-NIH-Precision-Medicine-Research-Program-with-The-Scripps-Research-Institute-TSRI/default.aspx. Accessed 28 Jan. 2018.

Fitbit to Donate $1 Million Across Three Charities With FitForGood. investor.fitbit.com/press/press-releases/press-release-details/2015/Fitbit-to-Donate-1-Million-Across-Three-Charities-With-FitForGood/default.aspx. Accessed 28 Jan. 2018.

Mylan Pharmaceuticals gained front page notoriety in 2016 for its part in sweeping allegations of price gouging and Medicaid abuses among large pharmaceutical companies. Consumer backlash to the rising costs of healthcare fueled a hailstorm of media attention, spotlighting Mylan’s unprecedented price inflation of several older generic drugs. The Mylan product at the forefront of the debate was the EpiPen; an emergency treatment device that assists patients in self-administering adrenaline (epinephrine) during severe allergic reactions. The device had grown into a household brand over the 30 years since its introduction and EpiPen’s brand loyalty provided the foundations for one of the industry’s most successful, and now most questionable, brand revitalization campaigns ever launched. The marketing vision began in 2007 when Mylan Pharmaceuticals purchased the rights to the EpiPen brand inside a $6.6 billion packaged deal of 434 generic drugs from Merck Pharmaceuticals. Shortly after the acquisition, Mylan began increasing prices by increments of 10% per quarter until the EpiPen’s price had grown by over 600% in ten years that followed (Darden).

Mylan management defends the increases, claiming to have invested over $20 million in product and distribution chain improvements since acquiring the product (Koons). The firm’s executives cite that former owner Merck’s initial price of $94 per package generated a comparatively low 8.9% net profit in 2007. Defendants of the price increases also argue that price adjustments were necessary to create a sustainable supply chain of the lifesaving medicine (Lee).

The combined sum of those arguments were unable to pacify the critics after an investigative report by Ben Popkin of NBC news revealed that “from 2007 to 2015, Mylan CEO Heather Bresch’s total compensation went from $2,453,456 to $18,931,068, a 671 percent increase. During the same period, the company raised EpiPen prices, with the average wholesale price going from $56.64 to $317.82 per pen, a 461 percent increase, according to data provided by Connecture.” In a historical pricing perspective of the brand, Bresch’s salary increases alone increased the cost of manufacturing the EpiPen by nearly $5 per package; which, when contrasted to Merck’s original pricing, would have cost the product nearly its entire profit margin. The attention garnered by the compensation of CEO Bresch, along with the observation that over 40% of Mylan’s annual profits were now being generated by the EpiPen price increases, compounded Mylan’s public relations woes as a symbol of management’s greed, drawing nationwide criticism on executive pay excess and pharmaceutical anti-trust laws (Bastick).

Today Mylan has arrived at a strategic crossroads in its marketing vision. The firm’s 90% market share of epinephrine injectors will certainly be jeopardized if revised pricing fails to satisfy expectations of corporate responsibility, and the potential loss of the EpiPen market could cost stakeholders $847 million in annual earnings (Ubel). In addition, the brand collapse would generate a multi-billion dollar capital value loss of resale value of the brand. Since EpiPen’s patents will soon expire, Mylan’s original plan to sell off the division for a fast profit would be hampered by the devaluation of the EpiPen brand name, rendering the manufacturing facilities, goodwill and marketing capital worthless to prospective buyers.

Background

Unlike other pharmaceutical structure pricing bands, the EpiPen injector pricing was relative to the mechanical engineering patents contained within its dosing syringe system, rather than the chemistry of its medicine. The generic hormone solution inside the applicator has been widely available for years at prices less than $2 per dose; however, the precision, spring-loaded application syringes cost approximately $35 to manufacture. Critics claim that excessive marketing spending under Mylan’s management inflated the total cost to manufacture, market and distribute the device, from $80 to as much as $450 per package (Popkin). EpiPen had enjoyed a unique advantage in the drug market, because its mechanical design the EpiPen had been protected through engineering patents which were outside the pharmaceutical anti-trust regulations of the FDA (Darden). In addition, the arrival of new entrants to the market had been limited by the historically low profits earned by these injection devices (Lee).

The patents alone however, did not allow for a market domination, Pfizer had patented a rival product, the Adrenaclick, which was released for exclusive distribution through Wal-Mart in 2010. The new entrant, however, faltered due to limited brand awareness and its restrictive distribution exclusivity to Wal-Mart stores. In two years following its introduction, Adrenaclick failed to capture more than a 7% market share, despite selling at a price point of 1/3rd that of the EpiPens. In 2012 the maker of Adrenaclick sold off its manufacturing equipment and the product temporarily left the market, under the assumption that the timing was not right to continue challenging the EpiPen for market share (Bastick). Internationally EpiPen competed against a French rival the “Auvi-Q” which was sold in Europe at around $100 per package; however, Auvi-Q initially chose not to apply for U.S. distribution due to possible U.S. patent overlaps with some of EpiPen’s design. The continued existence of this international competition in the injector market remains the driving force behind why EpiPen prices in Europe have remained near their original 2007 prices, at around 1/5th the price of EpiPens sold in the U.S.

Much of Merck’s pre-2007 decisions for U.S. price points near the $100 mark were justified by the international price competition of the French Auvi-Q. Merck management believed that if U.S. market profits grew too lucrative, that Auvi-Q would challenge its U.S. patent rights, generating a legal battle that would cost years of EpiPen’s profits along the way. In addition to Auvi-Q, a new rival was introduced to the U.S. market in 2005 named Twinject which was marketed at a lower price point, at the time, than the $90 EpiPen. With pricing influenced by anticipated market competition of 2007, the 25 year old EpiPen line had been generating less than $17 million in profits from about $200 million in sales. Even Mylan executives had initially planned to spin off the EpiPen line from its new portfolio purchased in the Merck deal (Koons). However, CEO Heather Bresch saw a golden opportunity for the product and persuaded the board of directors to use EpiPen as a sample case for the future marketing of its generic brands. Mylan took on a revitalization marketing campaign and set its sights on capitalizing on the remaining untapped profits from its captive mechanical syringe market (Koons).

Pricing the EpiPen was a great challenge, since strategies in drug pricing are deeply complex; pharmaceutical makers are faced with a more complicated marketing landscape than manufacturers of retail goods. Prices for the same drug can vary widely from one country to the next, for example an EpiPen is priced in Great Britain at $69, in Germany at $190 and in the U.S. at $600. This variation among pricing processes reflects the complexities of distributing a product to meet a variety of competitors and price-influencing criteria in each market. For example in the U.S. the FDA along with private insurers utilize a market driven price allowance, in the spirit of capitalism, a drug maker can charge nearly any price for its products, a policy that is intended to draw new entrants into the market and drive prices down and quality up. In comparison, many European countries require an approved “reference pricing model”, which dictates the fair insurance reimbursement value of a drug is based on the costs of its alternatives. Some countries such as France include negotiable “price band” restrictions that cap the maximum price the drug can be sold at as an allowable percentage over the lowest price which the company sells the drug in other nations. Because of these price regulations some pharmaceutical firms choose not to distribute their products in highly regulated markets such as France and Switzerland (Rankin).

In 2009, the anticipated arrival of new entrants to the market became a reality when French rival Auvi-Q applied for North American distribution. Auvi-Q was expected to challenge EpiPens U.S. patent rights; however, Auvi-Q withdrew from the U.S. market entry after a series of safety recalls crippled their brand’s market value, they too believed the timing was not optimal to challenge the EpiPen for market share. Bresch’s strategy flourished by the subsequent delay of new competitors to the market and EpiPen found a growing market, even at much higher prices. The CEO’s belief was, that through an increased profitability of the mature market, Mylan had created an incentive for competitors to join with their own rival products in the final years remaining, until 2025, when the EpiPen patents would expire. The resulting lucrative margins created by the new higher prices would provide an improved resale market for the EpiPen division or the future licensing of its technology (Koons).

Mylan expected that the new players in the market would quickly drive EpiPen prices back to near its original $90 per package through price wars. During the eight year period of price increases, EpiPens previously stalled sales volume, even grew by 67%. Mylan had successfully expanded the existing market by lobbying for revisions to school medical restrictions which had prevented school staff from administering the shots to students in emergencies. With the restrictions lifted, Mylan further lobbied for tax subsidies to donate free EpiPens to schools, increasing goodwill and lowering corporate tax burden by $600 per package rather than the $100 per package deduction which would have been captured in the previous price formula. The theoretically deductible donations allowed Mylan to pay an effective 20% U.S. corporate income tax rate in 2015, saving it nearly $100 million in tax liabilities (Lee).

Bresch’s short-term strategy was directed at harvesting larger profits in the U.S. market through price increases, brand recognition and distribution expansion for several years until competitors could mobilize new products. From Bresch’s long term perspective, once that competition arrived to the market, Mylan could sell off the EpiPen brand and its soon expiring patent protection to the new competitors. However, in the eight years that followed the campaign launch, the anticipated competitive price pressure never materialized, as both Auvi-Q and Twinject suffered public relations problems and financial difficulties during the recession which caused both competitors to withdraw from the U.S. market by 2014. Capitalizing on the limited competition, Mylan increased prices by about 10% per quarter per year, gradually bringing the price from $90 per pair of EpiPens to over $600 per pair.

Alternatives

Mylan executives forecasted the introduction of EpiPen rivals by 2010, however the recession and other unforeseen regulatory factors delayed the arrival of that competition by nearly a decade. Bresch defends Mylan’s aggressive pricing strategy, justifying the tactics by capitalizing on the opportunity to harvest an additional $600 million per year in profits for every year that competition failed to materialize. Executives such as Bresch could claim a fiduciary obligation to the investors to exploit market gaps for shareholder gain and to pad the company cash reserves to fund new drug products (Koons).

In addition, Mylan leadership claims that they did not believe that they were creating a public safety crisis of affordability, because the allergic reactions could be just as effectively treated with an economical alternative which utilizes a $2 syringe and $5 vial of epinephrine. They pointed to the low switching costs of those alternatives and pointed to the examples of emergency responders that had converted back to dosing patients from syringes in addition to the arrival of free clinics which guided the uninsured on the creation of their own emergency kits for a fraction of the cost of a preloaded EpiPen (Rankin).

Mylan’s leadership could not have reasonably anticipated the market’s reluctance to self-dose from conventional syringes. Bresch initially believed that the primary competitive advantages envisioned for the EpiPen were limited to small children who could not administer epinephrine through syringes and to schools which were only protected from legal liability by using the EpiPen or an approved similar device (Koons). Regardless of price, consumer’s fear of incorrect dosing or injecting air into their bloodstream stalled the advancement of self-administered syringes (Bastick). The media scrutiny chose not to address that the EpiPen price should have little effect on affordable healthcare since it is viewed by medical practitioners as a simple convenience, rather than a medical necessity (Lee).

The lack of mounting competition for the past decade could not have been foreseen by management either, as three attempts at injector market entry by other firms failed due to poor timing or marketing. The introduction of a generic EpiPen competitor by Israeli firm Teva Pharmaceuticals was also denied by the FDA in 2016 further diffusing competitive influences. However, in late June of 2017, the FDA approved the next major player in the epinephrine injection market, Adamis Pharmaceuticals introduced their own injector under the brand name “Symjepi” a cheaper alternative to Mylan’s EpiPen, but expected to price higher the Adrenaclick (Bastick). Auvi-Q has also been approved to market their rival injector beginning in 2017 and Adrenaclick and Twinject have announced their returns to the market.

In response to consumer backlash and the coming arrival of generic substitutes, Mylan has announced that it will release a generic version of the EpiPen priced at around $300 per package of two. Analysts suspect that Mylan will continue to donate the EpiPen brand version to schools for a write off of $600 per package to maintain their tax savings and continue to promote the EpiPen brand to those whose insurance allows for brand name premiums. Despite the announcement, Mylan has not been quick to launch the distribution of its half priced generic alternative (Bastick).

Proposed Solution

The arrival of the new competitors, the aging patents, along with the media scrutiny makes a clear case for drastically reducing the EpiPen price. It stands to reason that competition among new firms will drive prices back down to the mid-$100’s per package or possibly even lower by 2025. The inevitable loss of EpiPen’s mechanical patent protection will soon render the brand’s competitive advantages obsolete. The EpiPen brand appears to have run its lifecycle and while the marketing tactics of Bresch succeeded at capturing an astounding quantity of remaining value from the brand; a change of course is needed to salvage the remains of Mylan’s public image and diffuse additional conflicts with lawmakers. The negative publicity around the EpiPen pricing is a driving force that pressured lawmakers to fine Mylan $465 million in 2016 for exploiting a regulatory misclassification to increase Medicaid reimbursement rates. It is likely that regulatory backlash will begin impacting the future FDA cooperation of Mylan’s other products. Continued friction between government regulators and Mylan could delay the FDA approval of more profitable new products and increase scrutiny into other areas of taxation and accounting regulations.

According to Porter’s five forces, over the next 10 years, EpiPen will suffer the fate of many other mature, low technology products which survived by the slight advantages of their distribution chain efficiency and became unable to grow and generate premium profits through technology advantages. For a firm such as Mylan, their interests would be best served by directing their focus toward the development of new products rather than expending administrative resources on the low-margin, maintenance of a supply chain distribution in a mature market.

Recommendations

Selling off the EpiPen brand and facilities to rival Teva Pharmaceuticals seems to be the most logical course of action. Teva’s acquisition of a widely recognized brand such as EpiPen would gain them access to the U.S. market which had recently been denied to them by the FDA’s rejection of their competitive product. The brand development value to Teva appears to exceed the future earnings potential of the EpiPen division to Mylan and could allow the firm to negotiate a premium sale price. However, there is some friction remaining between the leadership of both companies after Teva’s 2015 failed takeover attempt of Mylan.

The logical course of action, would be to advise Mylan’s CEO, Bresch, to contact leaders at Adrenaclick, Teva and Adamis to locate the highest bidder for the sale of the EpiPen brand prior to Mylan’s own launch of the generic version. By leveraging Teva’s offer, Mylan may be able to tempt either Adrenaclick or Adamis to pay a similar premium price for the brand. In addition, by delaying the generic marketing launch, a new competitor could capture the generic market by utilizing their own marketing campaign budget already allocated toward their entrance to the market. By allowing the new entrants to control the price band, the strategy could allow the entrants to more efficiently gain control over the adrenaline injector market, allowing the fewer remaining players to enjoy greater profit margins. It should be expected that EpiPen’s $800 million in annual profits will soon diminish back near the $18 million level of 2007 in the face of international competition and public scrutiny.

Conclusions

Mylan’s success at capturing untapped profit potential from a low-profit, mature market provided a valuable case study in both brand management strategies and an application of SWOT metrics. While the long-term brand potential remained limited, CEO Heather Bresch demonstrated great insight by capitalizing on EpiPen’s remaining market strengths and leveraged those strengths through marketing to exceed all foreseeable expectations of profit potential for the lackluster brand. Some analysts calculate that Bresch harvested more than three times the profits from EpiPen in the 10 years at the end of its patent protected lifecycle than the profits from all of the other companies combined, that owned the product along the 35 years that EpiPen was on the market (Koons).

The negative press would likely have been unforeseen by anyone, since the catalyst for the media scrutiny was originally aimed at Turing Pharmaceuticals and its outspoken CEO Martin Shkreli for their price hikes on lifesaving AIDS treatments. Mylan’s own negative press exposure was viewed by many as unjustified collateral damage, which brought an unfavorable spotlight on Bresch’s strategy and may have accelerated the entrance of new competitors which had been waiting patiently to exploit the optimum timing to reduce switching costs for consumers (Lee).

The public relations opportunity that Mylan probably missed was to demonstrate an empathy toward the uninsured by launching a parallel campaign to provide a package of free EpiPens a year to the uninsured or low-income underinsured customers, rather than their chosen direction of providing “$100 off” coupons that were limited only to those with commercial health insurance. Mylan’s disregard for the underinsured struck a nerve with the low-income masses and fueled the media frenzy that surrounded the executive pay scandals. The public relations damage to Mylan’s brand value and the resulting lack of political cooperation that will follow could be estimated to cost several billion dollars in the coming years as lawmakers begin to apply their own pressure by withholding cooperation and avoiding any compromises that appear to benefit Mylan.

P/E RATIO: [PASS] The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. MYL’s P/E is 38.62, , while the current market PE is 19.00. Therefore, it passes the first test.

TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. If a company does have a high level, an investor may want to avoid this stock altogether. MYL’s Debt/Equity (128.91%) is not considered high relative to its industry (152.29%) and passes this test.

SOURCES

“10 New Years Resolutions for the Pharmacy Industry”. 2017. Medreps.com

For our assessment, we chose to take an in-depth look into the tire industry. Drawn to the topic because of the industry’s large carbon footprint per unit sold and its historic reputation as an environmental polluter of PVC manufacturing byproducts, which have been linked to liver cancer in tire plant workers.

The impact of worker PVC exposure has been well studied and in response to that research, the EPA has regulated the manufacturing process and the industry has taken subsequent action to reduce PVC vapor exposure (Criswell 3).

Tire consumption is not considered to be an optional luxury good in industrialized countries; therefore, eliminating tire use is not currently a realistic goal; therefore, creating a long term sustainable plan for the industry is imperative.

Since rubber product manufacturing is a mature industry dominated by a handful of large multinational companies, it therefore represents an ideal topic to study as an application of well-developed pollution control policies.

The biggest obstacle that we encountered in our U.S. industry choice was the fact that two of the largest companies in the industry were not U.S. based firms.

Michelin, a French based firm, and Bridgestone, a Japan based firm, are both companies that have bought nearly all the major American brands (i.e. Firestone, Uniroyal, and BF Goodrich) in order to gain North American facilities in their pursuit of global expansion (Goodyear Tire…SWOT Analysis 3).

We did, however, secure permission to include these companies into our research due to the fact that they are traded on either the NASDAQ or NYSE, and both have published detailed reports for their American shareholders.

FIRM SELECTION: GOODYEAR TIRE COMPANY

We chose to narrow our research focus to the Goodyear Tire Company because it is the largest U.S. based tire manufacturer.

Based on conclusions drawn from older news stories about the company and previous MSCI ratings, it appears that Goodyear had been a laggard in social and sustainability issues over the previous 30 years; however, more recently the company has sought to reinvent its public image in 2010 with the launch of a strategic initiative on environmental and safety concerns (“Goodyear Tire…SWOT Analysis” 17).

While Goodyear has advanced upward in the MSCI ratings, it still falls behind its two major foreign competitors, Bridgestone and Michelin, in most environmental categories. Goodyear also scores a very distant last place ranking in financial performance among the top five tire companies in their 2015 financial reports.

Despite the poor financials, most stock analysts still recommend Goodyear stock as “undervalued” or as a “long-term buy,” which indicates that analysts believe the current financial condition is temporary and improving (“Goodyear Pumped with Tire Profits” 1).

Economic Assessment

In the most recent 2015 annual reports, Goodyear was the poorest performer in its industry, and appeared to have fallen dramatically in comparison to its previous four years.

However, most of the 2015 change in financials is attributed to Goodyear’s decision to write off one of its largest tire manufacturing plants located in Venezuela where operations have been disrupted by currency and political instability. The company will retain ownership of the facility, but political instability will prevent the liquidation of the assets which will be written off in their entirety for the 2015 reporting year. Future sale of assets will be applied as capital gains to the year of sale.

Financial Times writer Pan Kwan Yuk summarized the Venezuelan liability in an article titled “Goodyear takes $646m hit on Venezuela” in the February 9th, 2016 edition of The Financial Times in his description of the events:

“The economic meltdown in Venezuela continues to blow holes across the balance sheets of corporate America, with Goodyear, the US tire maker, the latest to announce a substantial write-down to its business there.

The company said it took a $646m hit during the fourth quarter after it moved to deconsolidate its Venezuelan business from its financial statements. The write down pushed Goodyear into a loss of $373m for the December quarter, compared to a profit of more than $2.1bn a year earlier.

Excluding the Venezuelan write-off, net income came in at $257m.

Major US companies with exposure to Venezuela – including Procter & Gamble, Colgate-Palmolive, American Airlines, PepsiCo, AT&T and Ford Motor – have been collectively forced to take billions of dollars of write downs in recent years as Venezuela’s currency problems accelerate.

But like its peers, it has decided deconsolidate and write off nearly all of its cash and investment there amid little sign that it would be able to take the cash out of the country. The move comes as soaring inflation and the fast depreciating bolivar render the value of its bolivars lower by the day. Foreign currency exchange losses related to the Venezuelan bolivar fuerte came in at $34m for the 2015 year, Goodyear said.

Goodyear generates nearly half of its revenues from outside North America and the collapse of a number of major developed and emerging market currencies against the dollar has sharply eroded the value of its sales in those countries. Sales for the fourth quarter were $4.1bn, compared to $4.4bn a year ago. “Sales were impacted by $339 million in unfavorable foreign currency translation,” the company said in a statement. Shares in Goodyear, up 4 per cent over the past 12 months, were largely unchanged in pre-market trading.”

Despite its most recent financial results, many stock analysts see retained value that was built over the most recent five year performance and strongly recommend purchasing the undervalued Goodyear stock throughout most of 2016. In fact, over the past eight years Goodyear stock price has increased by over 500%. However, much of those gains were actually recovering stock price that was lost in the financial crisis of 2008, and has only recently returned to its 2007 price peak after the stock split of 1999. Despite the excellent 12 month performance of both Bridgestone and Michelin, both Goodyear and its U.S. peer Cooper tire have superior 5-year stock price increases.

For Example, on September 28, 2016 ETmarketwatch.com included Goodyear Tire in their article titled “These are the Nine Most Beloved Stocks on Wall Street Today” by describing Goodyear’s future potential:

“You might not always trust Wall Street analysts, but their views on stocks can be useful. For one, you can see which companies they favor. And, second, which shares might still be undervalued, given the seven-year-plus bull market in U.S. stocks.

The games that companies and sell-side analysts play with quarterly earnings — lowering expectations to set up “earnings beats” — hurt the credibility of analysts. Their reputations also are hurt by their tendency to avoid putting “sell” recommendations on stocks. In fact, as of the close of trading Sept. 20, not a single S&P 500 SPX, +0.08% stock had majority “sell” ratings, according to FactSet.

But if you speak to a Wall Street analyst about an industry or a company, he or she will show impressive expertise and be able to justify his 12-month “buy,” “sell” or “hold” ratings pretty easily. Over the long term, analysts are also influential over stock prices as their consensus earnings estimates rise or fall.

Analysts often recommend buying shares of a company because the current stock price is considerably lower than where they think it should be, based on earnings and sales growth, cash-flow generation or other metrics. So there can be a great deal of logic behind a “buy” recommendation.

So we are listing, below, the stocks that are getting the most love from analysts. It might surprise you that there’s not a single stock among the S&P 500 with 100% “buy” or equivalent ratings. But here are nine with at least 90% positive ratings among analysts:

Figure 1- FactSet Stock Analysis

Figure 2- Consensus Recommendations

All the stock analysts’ recommendations on Goodyear we found in November indicated that around $30 per share of the stock is undervalued and on average support the data posted by Marketwatch. Reuters.com posted this summary graph from November 24, 2016 supporting Marketwatch’s claim that nearly all analysts expect Goodyear stock to out-perform the market in coming years.

Some analysts also explain that since tire manufacturers stock prices are volatile by comparison to the S&P 500 due to their reliance on rubber plantation yields, which are often impacted by weather, currency fluctuations and political news. With that level of volatility, tire companies stock prices typically trade at a discount to their earning potential when compared with other less volatile industries (“Sweet Spot” 1). However, while automotive component manufacturer stocks are performing well, the surprising discovery was that Michelin and Cooper, who posted superior returns on their 2015 earnings statements, both have lower stock purchase recommendation than do the frontrunner Goodyear and close second place Bridgestone.

2015 Annual Tire Revenue in Billions USD

Goodyear

Bridgestone

Michelin

Cooper

16

27.1

22

2.9

Of large rubber companies, there are inconsistent rankings among the largest companies. Some rank by corporate revenue, including non-tire, and some even have substantial revenue generated by non-rubber products. For example, in overall revenue, including all subsidiaries, Goodyear is the world’s largest. However, by tire revenue, Goodyear ranks a distant third in revenue from tire sales and Bridgestone leads world tire revenue.

2015 Global Tire Industry Market Share

Goodyear

Bridgestone

Michelin

Cooper

13.8%

23.4%

19%

2.5%

The global tire market demand creates a $116 billion per year industry, of which Japanese Bridgestone captures nearly a quarter of with Goodyear distantly trailing at about 14% global market share.

Current Ratio

Goodyear

Bridgestone

Michelin

Cooper

1.24

2.17

1.91

3.08

Goodyear’s current ratio at 1.24 is the lowest of the Big 4 Tire Companies, but still within a healthy range for auto component firms. Cooper Tire is the leader in the above financial performance metric.

Quick Ratio

Goodyear

Bridgestone

Michelin

Cooper

.74

1.5

1.06

2.13

Goodyear’s liquidity, a metric that serves as a precursor to a firm’s potential, inability to pay its current liabilities, as evidenced by the quick ratio, shows that Goodyear is the least liquid of the Big 4 Tire Companies at a .74, which is considered to be financially unsound at levels under 1.0. However, analysts must view this as a temporary result of the Venezuelan deconsolidation and, in spite of the liquidity report, recommend investing in Goodyear (Kwan Yuk 1).

Cash Ratio

Goodyear

Bridgestone

Michelin

Cooper

.3

.72

.36

1.17

Goodyear’s 2015 cash ratio is the lowest of the Big 4 Tire Companies at .3, with a near tie to Michelin at .36. What seems surprising is that Cooper indicates excellent cash availability, possibly due to the lack of an aggressive growth strategy.

Debt to Equity Ratio

Goodyear

Bridgestone

Michelin

Cooper

1.46

.1963

.2881

.316

Again, Goodyear ranks last in the financial performance metric of debt to equity ratio coming in at 1.46 in comparison with its three industry peers, which all have ratios under .32. However, mention is made by analysts that Goodyear’s accounting system regarding their underfunded pension is the factor that skews this metric. Financial analysts suggest that the average U.S. firm has a debt to equity ratio around 1.5, so Goodyear’s performance is not necessarily out of align with other industries, but their debt level is mentioned in the SWOT portion of their annual report as their greatest weakness.

Long Term Debt to Capital Structure

Goodyear

Bridgestone

Michelin

Cooper

52.91

16.64

18.91

23.0

With regards to long term debt to capital structure, once again, Goodyear distantly trails its top industry peers with a ratio of 52.91:1, in comparison to the other end of the spectrum where its rival, Bridgestone, is much less risky in its structure at 16.64:1.

Debt to Assets Ratio

Goodyear

Bridgestone

Michelin

Cooper

35.01%

11.63%

18.91%

12.7%

Goodyear again trails its industry peers with its debt to assets ratio, with 35.01% of its assets financed by debt, where its top industry peers have healthier ratios from 11.63% to 18.91%, another indicator that suggests that Goodyear does not have the financial health and stability of its peers.

Return on Assets

Goodyear

Bridgestone

Michelin

Cooper

1.78%

7.33%

5.01%

8.64%

With regard to return on assets, Goodyear continues to lag behind its peers. However, analysts explain that if the Venezuelan deconsolidation had not been charged to 2015, the return on assets would have been around 6% (Kwan Yuk 1). One notable observation here is that American rival Cooper, who will later be discounted for poor corporate citizenship scores, shines on this primary measure for generating profits, which suggests the possibility that critics of environmental policies and reporting of the top three who score high on corporate citizenship measures may be at a cost of several percent of return on assets over the short term, and might influence executives to discount the priority of environmental issues.

Return on Equity

Goodyear

Bridgestone

Michelin

Cooper

8.15%

13.26%

12.21%

23.34%

Goodyear’s 2015 return on equity performance also lags behind its industry peers at 8.15% in contrast to its U.S. rival and citizenship laggard Cooper Tire with a return nearly twice as much as the Big Three Tire Companies at 23.34%, which again might reinforce some skeptics’ views on the profitability of corporate sustainability objectives.

Return on Sales

Goodyear

Bridgestone

Michelin

Cooper

10.04%

13.6%

5.47%

14.19%

Goodyear ranks third place out of four in return on sales at 10.04%, with corporate citizenship laggard Cooper leading this profitability factor at 14.19%.

Earnings Per Share

Goodyear

Bridgestone

Michelin

Cooper

1.14

1.64

1.39

3.73

Goodyear ranked last out of four in earnings per share, with once again environmental laggard Cooper at more than double the second place Bridgestone.

Earnings Per Share Growth

Goodyear

Bridgestone

Michelin

Cooper

-87.51%

(5.43%)

13.77%

.718%

In the easily skewed benchmark of earnings per share growth, Goodyear plummets from the other top three tire companies by reporting earnings 87.51% lower than the 2014 annual report. This is also highly influenced by the write off of its investments in Venezuela. Michelin posted improved earnings per share and Cooper stayed nearly on pace with 2014 earnings.

Price to Earnings Ratio

Goodyear

Bridgestone

Michelin

Cooper

25.56

12.1

15.9

9.3

In terms of stock price value, Goodyear’s 2015 report shows a distant 4th place out of the four largest tire companies with a stock price of 25.26 times of every dollar earned, where Cooper stock represents the opposite spectrum where stock is valued at only $9.30 for every dollar of reported annual earnings. This ratio on the surface would not seem to support analysts’ purchase recommendation for Goodyear, however the record low earnings of 2015 as Goodyear wrote off $646 million dollars of Venezuelan assets skewed the single year earnings (Kwan Yuk 1).

Along with the previous influence of the Venezuelan write off, the 2014-2015 share price growth for Goodyear ranks it a distant last place among the Big 4 tire companies at -11.8%, where on the other end of the scale Bridgestone’s stock prices climbed 9.68% in the same year.

5 Year Average Growth in Share Price per year

Goodyear

Bridgestone

Michelin

Cooper

51.8%

32.2%

43%

59.3%

However, as evidenced by the above 5-year graph of Goodyear stock, it becomes more apparent why analysts are recommending clients to buy Goodyear stock. It can be seen that over the previous five years Goodyear stock values have increased by an average of 51.8% per year, and recent negative financial data is quite likely limited to a single non-recurring economic anomaly of the Venezuelan deconsolidation, which should have a beneficial effect on 2016 and future financials that will no longer be reduced by continued losses from the sinking Venezuelan location (Kwan Yuk 1). While both Michelin and Bridgestone post more stable financial condition than Goodyear, those competitors are inferior in shareholder value enhancement over the past 5 years. However, it once again needs to be noted that Corporate Citizenship laggard Cooper leads the Top 4 by a sizable margin in this measure of profitability.

Asset Turnover

Goodyear

Bridgestone

Michelin

Cooper

.95

.98

.92

1.2

In the asset turnover benchmark, Goodyear ranks third of four among closely scored competitors at .95. This area most likely was improved by the write off of Venezuelan assets. Once again, it must be noted that the leader of this metric is the laggard Cooper as its efficiency generating sales from its assets is 1.2.

Equity Turnover

Goodyear

Bridgestone

Michelin

Cooper

3.96

1.753

2.07

3.38

Goodyear did show top industry performance in equity turnover as they generated $16.40 of revenue in 2015 from only $4.142 billion in shareholder equity for an equity turnover ratio of 3.96, in comparison to Bridgestone which only managed to double its assets worth in annual sales. This benchmark provides some insight to the majority of financial analysts who are bullish on Goodyear’s future stock value.

Revenue Growth

Goodyear

Bridgestone

Michelin

Cooper

(2.02%)

3.17%

8.42%

(13.2%)

In the 2015 year-over-year revenue growth, Goodyear ranked third of the Big 4 at 2.02% loss in revenue from the 2014 annual report. This could be partially attributed to when the income from Venezuela was no longer being measured. This is the first major financial benchmark where Cooper had fallen to a distant fourth place. As little as year-over-year performance might actually mean, Cooper’s loss of market share may be attributed to the launch of high tech fuel efficiency and electricity generating tires being patented by its three rivals, where Cooper has not yet become a player in this tire technology design.

Five Year Average Revenue Growth

Goodyear

Bridgestone

Michelin

Cooper

(2.68%)

5.78%

3.45%

(2.42%)

Figure 4- Goodyear Growth Chart from CSImarket.com 11/24/2016

Five year average revenue growth is a more reliable indicator of management and industry performance. Here, Goodyear scores at an average annual loss of 2.68%, roughly a 15% decline over half the decade. However, Goodyear had been purposely exiting some tire markets and selling off lower profit lines to concentrate on high value tires and focus on its electricity generating electric car tires, which is later evidenced by its five year increase in profit margins. Here again, Cooper’s lack of investment in high value technology tires is most evident as they may maintain on units sold, but lose out on premium priced tires to inherit the low price leftovers of the Big 3. Bridgestone, which has expanded more deeply into heavy equipment and agriculture lines, taking up some of Goodyear’s void left after their exit from some of those lines, increased in sales revenue by nearly 30% over the past three years from its product line expansion (Pierce 1). Michelin gained about 15% in sales from its expansion into low rolling resistant tires for the hybrid and electric car markets.

Stock analyst buy recommendations may also be influenced by patents that Goodyear has applied for in a tire design that harnesses the heat generated from hot roads and friction, and converts it into electricity for hybrid and electric vehicles (“Tech News: Goodyear Unveils Electric Car Tires” 1). The technology is performing well in testing, and if manufacturing costs can become competitive on the designs, then the value of licensing the technology will become even more valuable than producing the actual tires, and would have a very positive effect on Goodyear stock prices. Alan Pierce wrote an industry reaction to the release of the prototype in the 75th issue of Tech Directions (2015) in an article titled “The Goodyear BHO3–A Car Tire That Generates Electricity.” The following summary:

“The Achilles heel of all electric vehicles is how far they can travel before their batteries need recharging. At the 85th Geneva International Motor Show, The Goodyear Tire and Rubber Company unveiled their BHO3 prototype tire. This tire has a built-in electricity-generating system that can partially recharge the batteries on an electric vehicle without breaking any of the laws of thermodynamics. To avoid breaking the laws of thermodynamics, their tire breakthrough has to generate electricity without changing the amount of energy used by the electric motor during the normal operation of the vehicle. Without changing how much energy it takes to roll the tire, the BHO3 prototype turns tire heat and tire deformation—which are caused by the normal rolling of the tire—into electricity. Tires are usually designed to run as cool as possible. Goodyear has intentionally designed this tire to run as hot as possible to maximize the amount of heat available for conversion into electricity. This tire is designed to absorb heat even when the car is parked. So even if the car isn’t running, its hot tires will be generating electricity to charge the car’s batteries. All ambient heat is converted into electricity by a thermo-piezoelectric layer that covers the full internal surface of the tire. Getting the tires hot is a priority, so the outer shell of the tire has a special black texture specifically designed to absorb sunlight and convert it into heat. The tread is also designed to absorb and transmit heat, created by the friction of the road surface, to further raise the tires’ temperature. Goodyear system that keeps the outer temperature of the tire reasonable while it is extremely hot inside. The goal here is to not melt the blacktop on the road’s surface or burn a person’s hand if they touch a tire. Goodyear’s goal is to get every bit of otherwise wasted energy converted into electricity. To convert the physical deformation of the tires where they touch the road, Goodyear built a separate piezoelectric layer that converts into electricity the physical flexing of the tire as it rolls. These tires are extremely rugged and they can run safely at 50 miles per hour for up to 50 miles even after suffering a puncture. Photo 2 shows what the Goodyear BHO3 prototype tire display looked like at the Geneva Switzerland International Motor show. You can view a video introducing the BHO3 at www.youtube.com/ watch?v=ViMqrtq4aYg. The Goodyear press release that I received did not indicate how the electricity will be transferred from the tires to the batteries, how much electricity the system can generate, or how soon this prototype tire will find its way into commercial use. However, down the road, when it is introduced it might increase the range of the all-electric vehicle enough to make the all-electric vehicle practical.”

The growth potential for electric automobiles could disrupt the 100 year old auto industry once consumer demand for electric models snowballs or once legislators increase tax penalties on combustion powered vehicles. Either way, non-combustion powered vehicles appear to be drawing near on the horizon, and companies that continue to invest in development of gas powered models may find themselves left behind when the change takes place. Goodyear had already lost first mover advantage in 2006 for low rolling resistance passenger car designs to Michelin, but came back in 2010 to patent unique technology to become the low rolling resistance pioneer in heavy truck tires in their recently released “Fuel Max” line that has analysts bullish on Goodyear’s stock performance.

To help detail Goodyear’s logic behind the contradictory financials, Dow Theory Forecasts published this article in on September 12, 2015 titled “Goodyear Pumped with Tire Profits” with the following explanation:

“Formed in 1898, Goodyear Tire & Rubber ($30; GT) initially sold bicycle and carriage tires, horseshoe pads, and poker chips. By the 1980s, Goodyear had grown into a bloated conglomerate that built wheels, aircraft canopies, and even dabbled in gas pipelines. Today those businesses not related to rubber are long gone, as Goodyear has refocused on its core operations. New tires accounted for 87% of Goodyear’s revenue last year, the remainder coming from rubber-related chemicals and about 1,200 tire and auto-service shops. Goodyear tends to be a jittery stock, with exposure to the highly volatile market for synthetic and natural rubber. For now, commodity-price trends tilt in Goodyear’s favor. The company’s raw-material costs fell 9% last year and are projected to decrease 12% in 2015. The stock’s volatility seems well discounted in its price. In Quadrix®, Goodyear scores in the cheapest quintile for price/sales, price/cash flow, and price/earnings ratios using both trailing and estimated current-year profits. At 11 times trailing earnings, the stock trades in line with its 10-year average. Goodyear, earning a Value rank of 95 and Overall rank of 98, was initiated in the June 29 issue as a Long-Term Buy.

Prizing profits over sales have declined 7% to 8% in each of the past three years, hurt by foreign-currency headwinds, weaker pricing, and soft volumes. But Goodyear has a knack for wringing more profits out of less revenue. Net income has surged in recent years on lower raw-material costs and the divestment of high-cost plants. In 2014, Goodyear posted its highest operating profit margins since 1996. Encouragingly, tire volumes are starting to improve. Goodyear’s volumes rose 2% in the March quarter, and the company projects a gain of 1% to 2% for the year. Moreover, Goodyear announced in June plans to dissolve a venture that involved joint ownership of Dunlop branded tires in the U.S., Europe, and Asia. Goodyear will pay a net price of $271 million to take full control of the venture in Europe, divest the North American venture while still retaining the right to sell Dunlop tires in most markets there, and gain full ownership of the Goodyear brand in Asia. As a result, Goodyear expects annual revenue to decline by $100 million, though per-share profits should rise $0.15 to $0.18 due to the reduction in non-controlling interest expense. Operating cash flow totaled $1.62 billion for the 12 months ended March, nearly five times higher than the prior 12-month period. Goodyear has also generated $651 million in free cash flow over the past year.

Investors may have to wait until 2016 for sales to begin growing again. But Goodyear continues to improve efficiency, last month announcing plans to shutter a plant in England and move operations to lower-cost regions. The consensus calls for 5% higher per-share profits in 2015, despite 9% lower revenue.”

The article encapsulates the perspective of stock traders who see great future value in the Goodyear Company based on past ability to overcome adversity and adapt to economic change. Many stock traders see Goodyear’s recent setbacks as an opportunity to obtain the stock for a discount.

Social and Environmental Assessment

Goodyear has a global stake in community engagement, and their personal social assessment of the company is broken down amongst four different categories: Safe, Smart, Associate Volunteerism and Sustainable (“Community Support”). The grant programs that Goodyear has set in place are meant to better the community as it applies to each of the four categories. These grants are part of the Goodyear Better Future platform.

Safe: This category encompasses finding support for safe travel and mobility within communities. Along those lines, Goodyear has four programs in place worldwide. The Safe Mobility Program (which is detailed further in the sustainability report below), the Safe Way to School project in Poland that helps teach first graders safety while walking to school, the Rainy Season Awareness campaign in Guatemala that helps prep drivers for travel in the rainy season, and Race Collaboration in Spain that teaches road risk prevention and responsible road behavior (“Safe”).

Smart: This area includes supportive programs for adults and children in the hopes of educating and inspiring creativity and innovation. Along with the STEM programs detailed later in the report through the sustainability report section, Goodyear has two other programs including the Student Environmental Program in Turkey that gives university students field-based training on environmental support for the future, and the Hope School Project in China that gives students a positive educational environment (“Smart).

Associate Volunteerism: Goodyear encourages its associates worldwide to get out into the community and get involved. They have established programs such as the Hand in Hand program in Slovenia that connects schools through social media, and the safe driving Road and Tire Safety Campaign in Indonesia (“Associate Volunteerism”).

Sustainable: Goodyear has many programs set in place to assure that environmental protection is a key driver for the company. The “Pay Attention! To The Environment” Campaign, which they started in 2010, involves a waste-management collaboration between 60 institutions to reduce high school carbon footprints in Slovenia. Brazil recently received the Goodyear company sustainability award for conservation, in Thailand received the country’s Environmental Good Governance award, and two plants in Turkey held a drawing contest to fill their yearly calendars with images drawn by children highlighting environmental safety and protection. These are all instances of good environmental sustainability efforts that Goodyear is proud to highlight (“Sustainable”)

The Goodyear Foundation is another program designed to fit alongside Goodyear’s social responsibility strategies, but this program focuses on individual funding efforts whereas the others are more community support focused.

GREENWASHING AND BLUEWASHING CLAIMS

Despite Goodyear’s below industry average current “BB” MSCI ratings, the company appears to be growing into a good corporate citizen based on the five year score improvements against higher scoring industry peers. Due to stricter regulations in their home countries, both Bridgestone and Michelin have a longer history of environmental stewardship policies. Goodyear and it U.S. rival Cooper are the only companies from the top five world tire manufacturers that are not members of the United Nations Global Compact. Instead, Goodyear has adopted the lightly regarded WBCSD (World Business Council for Sustainable Development), as well as the WRI (World Resource Institute) environmental impact reporting standards, and Cooper refuses to disclose sustainability reports (“Goodyear 2015 Annual Report” 42-44).

In addition to lack of GRI reporting, Goodyear also could be considered to be greenwashing its efforts since does not use an outside environmental audit firm to verify its impact reports. Among its industry peers, Michelin enjoys a recently upgraded “A rating” on its proprietary impact reporting system, and only “BBB” rated Bridgestone, BB rated Continental and B rated Pirelli utilize independent auditors to verify their environmental impact claims.

Despite Goodyear’s 2015 third place ranking in the big three tire companies, a look at the past three year’s ratings show that, in recent years, Goodyear had been close to the first place with its B and BB rankings in three of the past five years. It should be noted that in the most recent two years, all three tire companies upgraded by one or two grades in MSCI ratings.

The Goodyear website and annual reports have large sections dedicated to publicizing their corporate citizenship goals. Many of these goals seem to be conservative when compared to environmental activist firms like Patagonia or Interface. However, Goodyear received worldwide accolades for its seven consecutive years of zero Landfill success. As taken from Goodyear’s own website, here is the abbreviated front page summary of their 23 pages of corporate citizenship goals and policies.

21 Species of plants and animals protected on site of new Goodyear plant in Mexico.

While a site survey for Goodyear’s new plant in San Luis Potosi identified only a single cactus as a protected species in Mexico, 20 other plants and animals were recognized as protected by the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES). These species are not endangered or facing extinction, but their survival requires special consideration. As a company committed to caring for our environment and communities, Goodyear relocated all to safe and compatible habitats.

510,731 GHG emissions reduction in metric tons compared to 2010, our baseline year. In 2015, Goodyear exceeded a five-year goal of reducing greenhouse gas (GHG) emissions by 19%. Part of our strategy to reduce GHG emissions is to address the entire lifecycle of our products, including reducing emissions from supplied materials through manufacturing, during use and final end of product life.

23% water use reduction since 2010, our baseline year. While the majority of Goodyear’s manufacturing facilities are in areas unaffected by water scarcity concerns, it is still important to us that we continuously reduce our impact on local water resources. We have reduced our water use by implementing leak detection programs and water conservation strategies, and investing capital into water reuse and treatment systems at select facilities.

15% reduction in energy consumption since 2010, our baseline year. In 2015, Goodyear achieved its five-year goal of reducing energy consumption by 15%. Each of our regions has a full-time energy manager engaged in implementing steps to reduce the use of energy in our facilities around the world.

38% solvent reduction in the last five years. Goodyear continues to be an industry leader in efforts to reduce solvents in our manufacturing facilities. Our use rate in 2015 was 0.69, a further reduction from 2014. Our focus remains on the global application of best practices to further reduce this rate.

0% amount of waste any Goodyear manufacturing facility is permitted to send to a landfill. For the past seven years, Goodyear has maintained Zero Waste to Landfill, a program that applies to all manufacturing facilities. This corporate initiative reduces our environmental impact by requiring all manufacturing plants to reduce, reuse and recycle waste.

OUR PEOPLE

At Goodyear, we are one team working together to drive performance on the road, in the marketplace and throughout the company. To reach our full potential as associates and deliver on business goals, we strive for five interdependent behaviors: Act with Integrity, Promote Collaboration, Be Agile, Energize the Team, and Deliver Results.

65,000 + employees Completed compliance and ethics training events. Associates around the globe completed online and in-person training events on topics such as the Business Conduct Manual, anti-bribery, competition laws, financial integrity, conflicts of interest, privacy, and protecting company information.

4= Current number of Employee Resource Groups.

Employee Resource Groups (ERGs) benefit Goodyear associates by providing access to invaluable coaching, mentoring, professional development, training and seminars, as well as opportunities to expand their professional network within the organization. In 2015, Goodyear had four ERGs —Goodyear Veterans Association, Goodyear Women’s Network, Goodyear Black Network, and Next Generation Leaders. Goodyear has plans to add another ERG in 2016 to promote diversity and inclusion.

66,000 Associates around the world.

We encourage a culture where associates own their own development and managers provide opportunities, coach and support their people throughout the development journey. Our leaders are held accountable for inspiring their teams, growing the business and acting with integrity, and their own talent management by honoring their commitments to associates.

HEALTH, SAFETY & WELLNESS

At Goodyear, we continue to build a culture where safety and wellness are values to each and every associate. By doing so, we will continue our drive toward zero incidents.

36% Injury reduction in the past five years. At Goodyear, our goal for safety performance is for every Goodyear associate around the world to go home injury-free every day. Our ultimate goal is for zero incidents. Examples of this focus include programs such as Target Zero, which focuses on near-miss reporting, and our global audit program that helps us strive for full compliance and continuous improvement in our environmental, health, safety and sustainability systems.

18 Health and wellness program and communications channels in place. Goodyear’s wellness initiative for associates, GoodLife, provides the information, tools and programs that foster an atmosphere of wellness and promote a culture of health at Goodyear. A new channel, the GoodLife app, is scheduled to launch in 2016.

OUR INNOVATIONS

Innovation excellence drives our technological advances and enables us to create products and services that are valued and sought out by consumers and customers. Our solutions respond to the needs of an increasingly complex market and help to set us apart from the competition. Innovations our customers want and need.

Innovative Tires: Among other important attributes, Goodyear conducts research to make tires environmentally friendly and fuel efficient in a variety of ways, such as by reducing tire weight. For example, Goodyear is the first manufacturer to incorporate silica derived from rice husk ash into its tires. Aside from making tires more fuel efficient, this innovation has the potential to eliminate millions of tons of rice husk from the waste stream. Visit our Corporate Responsibility website for more information about our award-winning innovations.

SmartWay®-verified products on the roads.

A total of 21 Goodyear truck tire products that increase fuel efficiency and provide low rolling resistance have received SmartWay verification from the U.S. Environmental Protection Agency (EPA). The EPA established low rolling resistance requirements for retreaded truck tires in 2012, and verified tires must help reduce truck fuel consumption by at least 3%.

669 New worldwide patents received.

In 1900, when automotive tires were little more than oversized bicycle tires, Goodyear designed a better tire, thus creating the enduring Goodyear legacy of continuous improvement and innovation. Today, our success continues to be driven by innovation, and our associates around the world create innovative products, including those with low rolling resistance and other sustainable considerations.

COMMUNITY ENGAGEMENT

Goodyear has a long history of supporting its communities around the world. We strive to build and support collaborative programs that create positive outcomes for people, communities and the world around us. This mindset is reinforced through the company’s ongoing commitment to care for our communities.

In Akron, Ohio, Goodyear’s annual STEM Career Day engages local middle- and high-school students in challenging, hands-on STEM instruction and activities. More than 300 Goodyear associates volunteer their time to plan and supervise the event, which includes $40,000 in scholarships to deserving students.

Over $1 Million in funds raised for local charities by Goodyear Blimps since 2012.

Among other corporate responsibility programs, Goodyear supports the fundraising efforts of local charities by providing once-in-a-lifetime opportunities to ride the Goodyear Blimp at our Blimp locations in California, Florida and Ohio.

In 2015, for a fifth year, Goodyear hosted events for the general public at its three blimp bases to benefit the U.S. Marine Corps Reserve Toys for Tots Program. Attendees were invited to see the blimps up close while donating toys and cash to a worthy cause. More than 58,000 toys and $141 thousand have been donated since inception of the program in 2010. This includes a special donation in the form of a check for $10,000 from Goodyear made directly to the Marine Toys for Tots Foundation in 2015. Goodyear is recognized as a national sponsor and is a recipient of the Foundation’s Commander Award.”

With the above declarations of corporate responsibility, it should be noted that Goodyear has not always embodied the corporate values they’ve claimed in the annual report. Over the past 40 years, Goodyear has been associated with multiple hazardous waste lawsuits including the famous Love Canal site, which may explain why management’s most successful stretch goal was to eliminate waste disposal (“Company Spotlight: The Goodyear Tire & Rubber Company” 3). Goodyear also had been sued for worker safety concerns and consumer safety issues that have been blamed for thousands of automobile deaths. In 2003, Goodyear was forced to restate five years of its previous earnings that reduced declared earnings by over $100 million due to earnings management practices engaged in by management of European subsidiaries.

In addition, Goodyear was a party in three now famous precedent setting Supreme Court cases: one for equal pay, one for international judicial jurisdiction and another for improper evidence disclosure in a product liability suit. Dozens of other product liability and worker safety suits have been filed against the Goodyear Corporation over the past 10 years. However, for a company that employs 67,000 workers across the globe, the percentage of alleged wrongdoing appears to be minimal.

The most famous Goodyear lawsuit, which ruled in favor of the company, now has a law named after it as the legal structure was changed to protect workers in the future. The history of that law can be summed up in this summary of the original case ruling written by Linda Barkacs in the 2009 volume 12 of the Journal of Legal, Ethical and Regulatory issues titled “THE TIME IS RIGHT – OR IS IT? THE SUPREME COURT SPEAKS IN LEDBETTER V. GOODYEAR TIRE & RUBBER CO.”

“The plaintiff, Lilly Ledbetter (“Ledbetter”), began her career at Goodyear Tire and Rubber (“Goodyear”) in 1979. For most of her twenty year career at Goodyear, Ledbetter was the only female manager. Initially, Ledbetter’s salary was the same as that of the male managers. However, over time, Ledbetter’s salary slipped relative to that of the male managers. By 1997, Ledbetter was not only the sole woman manager, she was also the lowest paid manager. Ledbetter’s monthly salary at the time of her departure was approximately $3,700 per month. Similarly situated male managers at Goodyear made between $4,200 and $5,200 per month. In 1998, Ledbetter filed an administrative claim of discrimination with the Equal Employment Opportunity Commission (“EEOC”). She alleged that Goodyear violated Title VII of the Civil Rights Act of 1964 by paying her a lower salary because of her sex. Ledbetter’s claim eventually went to a jury who found in her favor. The District Court (in Alabama) entered judgment for Ledbetter for back pay, damages, attorney fees, and costs.”

Goodyear appealed the ruling based on the fact that the plaintiff had waited nearly 20 years to file a complaint for back pay, and the Supreme Court overturned the verdict in Goodyear’s favor. Legislation that prevents the recurrence of similar cases is now called the “Lilly Ledbetter Act.”

A second precedent setting Supreme Court case was Goodyear vs Brown, a case in which the tire company’s European subsidiaries won against the families of two boys from North Carolina who were killed in a tire blowout accident while in France on vacation. The Supreme Court ruled that the state of North Carolina could not bring suit against the French subsidiary of Goodyear due to lack of personal jurisdiction over a foreign company in a foreign country.

STAGES OF CORPORATE CITIZENSHIP

It would appear that Michelin and Bridgestone and Germany’s Continental have attained the innovative stage of corporate citizenship, with Goodyear, Sumito and Pirelli two stages behind at the Engaged level, followed by both Korean tire makers, Hankook and Kumho, and by the only other U.S. tire manufacturer Cooper, which lags far behind in the elementary stages of citizenship. However, despite comparatively low citizenship ratings, Goodyear is a world leader in waste management, having attained 100% landfill free sustainability, in which all of its waste products are recycled or consumed internally. Goodyear also ranks above its peers in water conservation and overall carbon emissions. Those waste management claims appear to be substantiated by credible news stories citing Goodyear’s zero landfill success (Criswell 1). With wide support of environmental critics on its landfill policy, it appears that greenwashing of environmental reporting is limited. In addition, the fact that the firm does not claim ties to the UN Global Compact and limits environmental credibility claims, it does not appear that Goodyear relies on bluewashing as a marketing tool.

CITIZENSHIP OVERVIEW OF SELECTED FIRMS

Bridgestone -BBB Rated – BRDCY

Starting with the world’s largest tire manufacturer, the Japanese owned Bridgestone Tire Company recently nudged its rival Michelin out of first place in global market share. However, in dollars of sales, Bridgestone has long dominated the world tire market in sales revenue and is considered by analysts to be environmentally focused in its policies (Bridgestone Corporate Website).

Cooper is second largest American tire company and the 10th largest in the world. Among the top 10, only Cooper and the two Korean tire companies Hankook and Komho refuse to publish environmental impact statements or discuss corporate citizenship goals in their annual reports. Because tire manufacturing is regulated by the EPA, Cooper does have some environmental data harvested from those compliance reports. There is no mention of carbon emissions on the Cooper investor website, however, Cooper is listed as very strong in energy efficiency policies on the MSCI data (Cooper Corporate Website).

As the metrics of corporate citizenship are compared, Cooper’s lack of investment in environmental technology becomes apparent as it trails the Big 3 by more than 10%, and Japanese Bridgestone leads the closest competitor by about 15%.

MSCI Carbon Footprint Ratings

Goodyear

Bridgestone

Michelin

Cooper

5.1

6.9

5.6

4.6

MSCI Total Carbon Emissions

Goodyear

Bridgestone

Michelin

Cooper

9

9.1

8.9

6.1

2015 MSCI ratings for total carbon emissions are very close among the Big 3, and the less environmentally concerned Cooper trails by nearly 30%.

MSCI Toxic Waste Ratings

Goodyear

Bridgestone

Michelin

Cooper

5.6

5.7

7.8

4.4

In a surprising outcome for toxic waste ratings, despite Goodyear’s Zero Landfill Waste Campaign, Goodyear trails Michelin by a large margin, and Bridgestone by a smaller one. This may be attributed to PVC vapor escape rather than physical toxic waste dumping. As would be expected, Cooper tire trails the BIG 3 by about 20%.

MSCI Clean Technology Development Ratings

Goodyear

Bridgestone

Michelin

Cooper

4.3

5.7

6.1

4.0

When it comes to a company’s investment in environmentally beneficial products, Michelin leads from its early introduction a decade ago in low rolling resistant tires, a market that Goodyear has recently began to dominate with a fuel saving heavy truck tire line-up. This does not, however, seem to be reflected in these ratings, as well as the potential upcoming release of Goodyear’s patented electricity generating tires, which could move them much higher in the clean technology ratings (“Goodyear Launches New Fuel Max LHS Tire” 1). Again, Cooper lags behind the Big 3 on this research and development category.

MSCI Water Stress Ratings

Goodyear

Bridgestone

Michelin

Cooper

7.3

6.3

3.4

Unrated

In this metric, Goodyear leads with its water stress ratings. Goodyear plants are designed to capture rainwater for use, and also filter and reclaim used water for steam needs. To reduce potential environmental pollution, no Goodyear plant is supposed to have wastewater drains that lead off their self-contained property (2015 Goodyear Annual Report). Bridgestone joins Goodyear in high marks where normally high ranking Michelin lags, and Cooper refuses to report its water handling and usage policies.

MSCI Product Safety and Quality Ratings

Goodyear

Bridgestone

Michelin

Cooper

3.3

3.3

1.2

3.6

With product safety to consumers, all of the Tire Industry falls below industry norms due to the competitive balance between product price competitiveness and the high level of liability that accompanies a tire failure. It seems that, historically, the ranking among the tire manufacturers varies with Michelin currently the target of dangerous tire failures to consumers.

MSCI Labor Management Ratings

Goodyear

Bridgestone

Michelin

Cooper

3.9

2.2

5.0

4.6

Goodyear ranks third of the four companies in labor relation policies, with Japanese owned Bridgestone a distant last place. Several labor relations issues followed when they acquired U.S. based Firestone in 1988 as Japanese management policies have been at odds with U.S. union labor culture for decades. Many analysts believe that either poorly trained strike breaking workers or intentional poor workmanship by disgruntled workers was the root cause of one of the product liability’s largest recalls in history: the 2000-2002 Ford Explorer Firestone tire blowout crashes that resulted in costs of $3 billion dollars (“Strikes, Scabs and Tread Separations: Labor Strife and the Production of Defective Bridgestone/Firestone Tires” 255-258).

MSCI Health and Safety Ratings

Goodyear

Bridgestone

Michelin

Cooper

8.7

7.6

5.3

Not Rated

In employee health and safety ratings, Goodyear leads its peers by a large margin. The costs of settling several large lawsuits over the past 20 years has motivated management to create strict workplace safety regulations. French owned Michelin came in a third place and American rival Cooper was unrated for health and safety.

MSCI Corporate Governance Ratings

Goodyear

Bridgestone

Michelin

Cooper

5.1

6.3

7.9

6.8

Goodyear held a last place ranking on corporate governance rankings. Analysts’ commentary on the matter suggest that until recently Goodyear’s board of directors was comprised of an excess number of current and former insiders (“Consider Goodyear for the New Year” 1).

Anticompetitive Practices

Goodyear

Bridgestone

Michelin

Cooper

4.2

4.2

5.0

Not Rated

Goodyear tied Bridgestone for second place in ratings for anticompetitive practices. In 1995, all four companies were investigated for alleged violations of U.S. antitrust laws. The 1995 justice department probe was the fourth for Goodyear, each investigation yielding insufficient evidence to bring charges. However, Cooper’s European subsidiary was convicted of violation of trust regulations in England, which was later reversed on appeal. The capital intensive barriers to entry of the tire industry for new competitors leaves the industry ripe for price cooperation among existing companies.

Business Ethics and Fraud

Goodyear

Bridgestone

Michelin

Cooper

4.2

5.0

5.0

Not Rated

The MSCI ratings for management ethics and fraud are relatively consistent among the Big 3 with Cooper tire again unrated on this metric. However, Goodyear does rank last of the Big 3, with some of its score discounted, possibly due to the four antitrust investigations and large civil settlement and precedent setting court case “Bahena vs. Goodyear,” where evidence showed that Goodyear managers deliberately withheld evidence in a product liability suit (www/leagle.com/nco 201007 p235).

Concluding Remarks

Based strictly on MSCI corporate responsibility ratings, Goodyear would rank third of the four companies studied with its American rival Cooper in a distant 4th place, despite the fact that the overall MSCI score for both was a “BB”. A-rated Michelin leads “BBB” rated Bridgestone by a small and historically temporary margin. Over the past five years ratings, Michelin had averaged a single “B” rating behind Bridgestone’s average double “B”MSCI Rating. In financial performance, Goodyear appeared to rank last place of the four firms studied, with Cooper tire posting financials considerably higher than the Big 3, however Cooper’s short term profitability seems to be relative to their lack of leveraged growth and sustainability investments.

Despite Goodyear’s position in the rankings, analysts’ stock predictions for Goodyear’s future potential financials are more optimistic than any of the other companies. The support of stock analysts suggests that Goodyear is, at the core, a sound and responsible firm going through a temporary set of setbacks that began with the 2008 recession, and has been slower to recover than its foreign based peers. Overall, based on the unique industry hazards and Goodyear’s history of making corrections to its corporate direction following lapses of ethical behavior as can be evidenced by their superior handling of worker safety and waste dumping, we believe that Goodyear is an above average corporate citizen that recently has underperformed when compared to its peers in financial measures.

When I first wrote the foundation for this article on “Consumer Resistance to General Motors Hybrid Vehicles” nearly six years ago, I was hoping to make sense of the unexpected marketing challenges that we uncovered when Americans proved surprisingly reluctant to purchase the General Motors electric and hybrid option vehicles in 2012.

The market timing of 2009-2012 seemed ideal for electric automobile technology, with record high fuel prices, deeper understandings of global warming and the inevitable decline of petroleum production in the coming century.

On the surface, it seemed to be a reasonable assumption in 2012, that industry projections for alternate fuel vehicles would become a reality and “most cars of the future” (by 2020 was the expectation) would employ some form of electric or hybrid powertrain.

It is ironic how eight years into the future seemed limitless in its potential; but, eight years ago, feels like it was just yesterday.

How could anyone not want inexpensive clean energy cars; especially, ones that cost less than a dinosaur powered vehicle?

Few people would even argue that oil reserves could possibly sustain our current demand for gasoline for future generations.

The proposed electric car technology was reliable, those powertrains had proven their reliability for a decade of testing.

The price was certainly right, General Motors hybrid options for Buick Lacrosse and Chevrolet Malibu were priced the same as the gas versions and, as bonus, the hybrids were even more powerful and provided income tax credits.

How could that not sell like a syrup covered hot cake????

I still shake my head in amazement at how difficult it was to get rid of the hybrids we ordered in 2011 at our Buick-GMC store. Several sales managers would have probably been fired if our veteran inventory manager Sandy had not pushed back and insisted that we limit our initial order to six units rather than the twenty that I thought was a very modest forecast …. this was not her first rodeo.

Sandy probably saved my job and managed to dealer trade most of those six aged units from our inventory and I for one, learned a valuable lesson in product development: think twice before building a superior solution for customers who do not see a problem worth solving.

Since that realization I, like many in the industry, have concluded that unless government intervention mandates the phase out of petroleum powertrains, the adoption rate of electric-powered vehicles could take another two decades. Looking ahead now from 2018, I have adjusted my expectations down a few notches from back in 2012; now, I suspect that relying on the market demand alone to bring electric powertrains to full-scale adoption would be overly optimistic.

I find myself taunting the overzealous Tesla enthusiasts with history trivia that the automaker Detroit Electric nearly overtook gas automobiles in the early 1900s, selling over 13,000 electric cars that had top speed of 20 mph and a recharge range of 80 miles. A current Tesla 3 base model is rated for 220 miles of recharge range and with modern production capability has only recently surpassed 200,000 units sold. That seems like a miniscule amount of progress made across the 100 years of technology that evolved between the two.

It also seems unlikely that government intervention will mandate the phase-out of the internal combustion engine. Some assumptions could be made regarding the far-reaching economic disruptions to foreign trade markets, devastation to the economies of export countries, displaced petroleum workers, and the reallocation of every dollar generated throughout the gasoline supply chain, not to mention the economic impact to the plastics and chemical industries which rely on the waste byproducts of oil for cheap fundamental ingredients.

So, despite being a GM guy whose career was built on gas engine emissions and combustion technology, I must admit that I had been rooting for Elon Musk’s solar-powered auto revolution. Mostly because, I hoped to avoid becoming one of those cynical old guys who fights progress, for no reason other than, maintaining a comfortable status-quo.

I am still optimistic that electric powertrains will become mainstream and that automobiles will convert to solar charged electricity before the rest of the power grid. However, I am imagining that the solar revolution will plod forward slowly for decades in a long-drawn-out guerilla war due to the lack of strong market pull for those alternative fuel vehicles while the petroleum industry survives long enough to support the codependent plastics industry until renewable sourced manufacturing ingredients are developed.

Hopefully Tesla investors are long-range thinkers and have prepared for the long road ahead when consumer demand someday aligns with electric automobile technology. Recently Tesla’s investors had their confidence shaken when company stock prices dropped over 60% during the first week of April over a combination of news that was only slightly negative. If that bearish responsiveness is any indicator of the market, we could expect that a prolonged loss of investor confidence could snuff out the young company before they make it to the finish line.

Few people in the auto industry expect the Tesla plants to disappear or its existing cars to become obsolete. However, a sharp drop in Tesla market value will most likely lure General Motors or Toyota in to absorb the brand at a bargain price in the coming years. Unfortunately, if that happens, a Tesla surviving without Musk at the helm will probably see electric car technology being pushed to the back burner, adding several additional decades to reach full market potential.

It is times such as this that it becomes apparent that consumers (and voters) stated principals fail to correlate with their actions. This anomaly of consumer behavior manages to slow the adoption of superior technology for reasons that will remain a mystery.

My personal experience from being on the front lines, trying to persuade General Motors customers to buy the hybrid powertrain has burned this demand paradox into my view of most technological advances.

For now, we can appreciate how one man, Elon Musk, passionate about his vision for solar power has managed to get far enough to pose a serious market threat to all three economic super powers: auto manufacturing, petroleum and the global power grid. I tip my GM hat to the relentless visionary and hope he makes it to the finish line to prove the naysayers wrong.

As a matter of fact, back in 2012, I used to tell a similar story to this one about rates of technology adoption, it was my own story about the technology predictions of a decade earlier. In 2002, a full two years before Elon Musk joined Tesla, while he was busy building PayPal, I enrolled in an Automotive Technology program and was introduced to Professors suggesting that our class focus on the General Motors hybrid trucks and Chevrolet EV1 electric prototypes from the parking lot, since they would be the products in the market when we finished the program in 2005.

Not taking any credit away from the Tesla contributions, but electric and hybrid gas/electric models were well-developed by several large automakers and proven in field testing long prior to 2002. General Motors introduced the GM Impact electric car prototype in 1990 and revised it several times into the EV1 in 1996, adding the S10 EV truck in 1997, the duo sold around 1600 units from 1996 through 2002 when they were discontinued due to high replacement battery costs.

GM prepared the next generation of alternative fuel powertrains, this time using smaller batteries in combination with the standard gas engine, allowing drivers to select between gas and electric modes. The added value proposition to hybrid technology being that the hybrid optioned car could still be driven in standard gasoline mode if the customer chose not to spend the $10,000 plus to replace the batteries required for the electric mode.

In 2002, most of us in the GM world thought this hybrid technology would provide the company with the competitive edge needed to fend off the Japanese competitors in the global market. Inside GM, everyone seemed fully committed to the project and the service press even printed the repair manuals and training materials for an expected hybrid truck product release.

We were told that the first hybrids would release no later than 2005. Surprisingly though, with the exception of the quiet release of a small batch of hybrid tucks in 2005, General Motors delayed the marketing air campaign for hybrid offerings until 2009. The marketing launch failed to build the required buzz among consumers and even with $4 gas, the hybrids were seen by most as a dismal market flop. Some environmental critics claim that the marketing campaign was designed to flop with a hope of preserving GM’s previous investments in gas engine technology while also winning support of environmentally focused politicians.

Regardless of the motives of the ineffective marketing campaign, I was there when new customers came to our showrooms to test drive hybrid models, then agreed with the proposition of the revolutionary technology; but, when it came time to sign the finance contracts, the agreement fizzled out. Many of these deals fell apart in the finance office, when the customers began contemplating uncertain future repair costs, trade in values, warranty extensions and differences in insurance rates. It seemed like many feared that hybrids would be a passing fad and they could be stuck investing in a car that would have limited resale or trade in value.

In fact, from 2008 to 2018 the General Motors dealership I worked at sold around 8000 new vehicles and despite the huge bonus offered to sales staff and managers to improve sales of hybrids, the store sold a whopping total of sixteen hybrid cars in those nine years and nearly all of those were leases.

These thoughts came to mind earlier this week when having a conversation with friends about another ambitious prediction in tech news that, by 2020, over 90% of web traffic will be video rather than the text and image data of today.

Being jaded now by these types of predictions, I shared with them another related story, that just a couple of years earlier I had read a similarly optimistic prediction, that by 2020, few people would be texting and reading from their phones; instead, we would all be using Siri-like voice translators and listening to the replies of others through our cordless ear buds.

With the 2020 model year now only fifteen short months away, I realize that most of the auto manufacturing line equipment is currently tooling for that year’s production and my friends in engineering tell me that they are working from forecasts that fewer than 7% of GM vehicles sold in 2020 will be ordered with the hybrid powertrains.

With that fresh on my mind, I am sitting in the atrium lounge of the University of South Florida, surrounded by nearly a hundred of the youngest millennials and realized that they were all still texting from their phones and reading the responses. I will curb my enthusiasm for consumer technology adoption projections in the future….. I am starting to see how old guys become so cynical

The foundation article from back in 2012, here is the research on the state of fuel economy technology and the obstacles to adoption:

Continued Consumer Resistance to General Motors Hybrid Vehicle Technology – November 7, 2012

EPA policies that affect the economy become front page news in an election year and the hot topic for 2012 is the Corporate Average Fuel Economy (CAFE) revisions, requiring automakers to improve average automobile fuel economy from 29 mpg to 54.5 mpg over the next 13 years. Agreements to these revised fuel efficiency standards were concessions made by automakers during the industry bailouts of 2009.

In the backlash of that federal bailout, critics have been quick to fault American manufacturers for their lack of long-term planning. However, in defense of management strategy, the automakers have for decades been doing what profitable businesses do best, responding to consumer demand (Vlasic).

The press often suggests that domestic auto sales recovery will depend on the fuel economy of the products that manufacturers can provide. These critics assume that consumers make purchase decisions using primarily math and logic; but, those of us in the auto industry experience firsthand that purchase motives are more akin to purchasing fashions or artwork. To most Americans, their car is a part of their self-image, not just a tool that converts dollars into miles traveled.

Journalists such as News-Herald’s John Lasko write articles that with opening lines such as, “With gas prices hovering near $4 a gallon, many are opting to trade in their gas-guzzlers for more fuel-efficient vehicles.” With news headlines like those, it is easy for the public to conclude that the US automakers lack of sales was due to its heavy reliance on gas guzzling models. However, those assumptions are based on popular ideas that the domestic manufacturers previously lacked the capability to produce fuel-efficient vehicles. In their defense, the simple reality remains, the automakers must make their first priority to produce those vehicles that sell well in the domestic market.

The critics overlook the 3 million Chevrolet Chevettes that were produced between 1976 and 1987 or its domestic counterparts, the Plymouth Horizon and the Ford Fiesta that provided fuel efficiency equal to most economy cars on the market today. For example, the Chevrolet Chevette was for nearly a decade, the American flagship economy car, selling millions by providing a real world fuel economy of 25 city/ 30 hwy, or with a popular diesel engine option reaching 33 city/41 hwy. The Chevette was sold with a base price, that inflation adjusts to about $11,000 in today’s dollars and consistently surpassed the fuel economy ratings of it’s main Japanese competitor, the Toyota Corolla by nearly 2 mpg for nearly a decade (fueleconomy.gov).

Compare those cost and fuel efficiency ratings to today’s most economical products available in the US, the Korean made 2013 Hyundai Accent with an MSRP of $10,665 that is rated at 29 city/39 hwy. The comparison of these cars in the context of the 25 years of technology that evolved between them should dispel assumptions that Asian economy cars have enjoyed decades of superiority in fuel economy (fueleconomy.gov). However, in the American car market, every one of those fuel sipping economy cars was discontinued in the late 1980’s when sales dried up as the pendulum of automobile fashion swung toward a return of larger and more powerful transportation, with the introduction Sport Utility vehicles and the return of V8 powered high performance sedans.

By 1990, it became increasingly unfashionable to be seen in fuel-efficient cars, American auto style entered the age of the 1993 Jeep Grand Cherokee, offering a taller ride height for a better visibility in traffic and providing the owner with a sense of safety and rugged capability. The Grand Cherokee became the benchmark to measure style popularity, marketed with an image of recreational outdoor travel and adventure rather than previous trend for economical commuter transport. These mid-sized all terrain Sport Utilities grew especially popular with female buyers in northern states, at the same time four-door 4×4 pickups became increasingly popular with young male buyers seeking that “Eddie Bauer” outdoorsy image.

Critics often ignore the strategic decisions that allocated research and development funding away from fuel economy and directed budgets to safety, performance and durability to meet the consumer demand curves. Over the past 15 years the average vehicle age alone has grown by a third to 10.8 years old with advancements in vehicle durability (USA Today). Additional progress that was made during that period to improve braking distances and implement crash avoidance technology reduced accident frequency and cut the percentage of crash fatalities in half. In an effort to appeal to consumer demands for more powerful accelerator pedals, 0-60 acceleration times have improved by over 40%. And to counter the reliability critics of the domestic cars from the 1980’s, the inflation adjusted annual maintenance costs have dropped by more than 80% (NADA.COM).

Today even after the industry collapse, American manufacturers once again dominate automobile industry technology development, General Motors again was ranked the 2011 No. 1 innovator in automotive patents by US patent board (Tuttle). However, consumer demand trends in automobiles are similar to those in fashion, with opposing trends recurring in 10-year cycles, such as style trends toward skinny jeans from bell bottoms and short carefully styled hair to today’s bushy headed natural hairstyles. Sociologists attribute 10-year style cycles to be dependent on the needs for generational self-image, as each generation makes fashion and identity statements to differentiate them from the previous generation.

Business Times writer Brad Tuttle suggests that the fuel economy trend that began in 08 will continue to gain momentum:

“A new True Car post traces the average miles-per-gallon rise among new cars sold
in the US… all of the top seven automakers posted dramatic year over year
increases in average miles per gallon. In 2011 the average new Ford got just 17.3
mpg compared with 22 mpg in February of 2012 … the rise comes primarily as a
result of Ford doubling sales of small cars such as the Fusion and Focus”
However, despite increases in economy cars sales, auto sales as a whole have risen, the demand is also increasing on 5-year-old full size SUV’s.

According to industry writer Nick Bunkley,
“Retail prices for five-year-old full size S.U.V.’s are 23 percent higher than a year ago
according to Edmunds.com, an automotive information Website. That is more than
double the average price increase of 11 percent for all five-year-old vehicles.”
One constant in the automobile industry, vehicle selection is an emotional decision more than it is an economic one. Customer buying motives first and foremost are influenced by how the vehicle makes them feel, a vehicle becomes one with the driver, it can allow them to feel bigger, more secure or more powerful. I recently encountered a perfect case that really defined the influence of self-identity on vehicle selection.

Carolyn, a 60-year-old widow and retired guidance counselor arrived at our Buick-GMC showroom in a well maintained, three-year-old, luxury four-wheel drive truck. Carolyn had gotten a letter from our used car department that high demand for trade-ins like her truck had currently driven trade-in values up thousands over the previous year. The letter encouraged her to consider upgrading soon, to take advantage of current trade in values for used 4×4’s.

The timing of the letter was perfect for Carolyn, since she had recently moved to Florida from the Midwest and no longer had the need for wintertime four-wheel drive; to further complicate matter the garage of her new condo also couldn’t accommodate the truck. She explained when she arrived, that she really wanted to reduce her fuel budget and downsize into one the new hybrid Buick Regal sedans she had been reading about in the newspapers, rated for twice the fuel economy of her truck.

Over the following week Carolyn test drove over a dozen of fuel-efficient sedans from ours and different dealerships including the Hybrid Regal that she initially planned to purchase. Despite our best efforts to persuade her to choose our last remaining hybrid, she instead opted to buy the high performance Regal T Type, performance sedan, that ironically provides an only a slight fuel economy advantage of 15% over the truck she was trading in and was priced thousands higher than the $28,000 hybrid version.

Carol admitted that when driving the cars rated highly for fuel efficiency she felt as if she had sacrificed the power that she was accustomed to and those low powered cars made her feel old and slow behind the wheel, she insisted that she “wasn’t ready to feel like an old lady toodling down the right lane, holding up traffic”. Carol’s time behind the wheel of the Regal Turbo made her feel young and put a smile on her face every time she pushed down on the accelerator pedal. For the sake of “feeling young” she was perfectly content to pay an extra $90 in monthly car payment for the high-performance engine and luxury options and disregard the $65 month in fuel savings that the hybrid version offered.

Think of the vehicle choices by comparing it to an airplane selection; imagine choosing between airplanes, where you could select a 2 seat Cessna that might make you feel like buzzing mosquito, or for another $150 a month, you could pilot the F-16 fighter jet or a Boeing 747 to work, ….to you, which of those options excites you? The difference it capability seems huge and imagine if the difference in increased fuel costs was only an additional $100 a month. The thrill of becoming something larger and more powerful and the status that comes with that ownership has an attraction beyond what can be measured in simple terms of transportation costs per mile. American buyers have consistently demonstrated that they are willing to sacrifice a larger part of their income to enjoy vehicles that provide them with excitement.

Current sedan trends are influenced by the fuel-efficient designs from Asian manufacturers, designed to handle the high taxes on Japanese gas and the shortage of open roads and parking space on the islands of Japan. Understanding the American tastes requires us to understand the differences in our driving habits and the luxuries of smooth, open roads that Americans can enjoy, foreign drivers are often limited in their ability to appreciate American tastes for size and horsepower.

However, in Australia, with road systems similar to the US, a huge market still exists for large SUV’s, trucks and big engine cars. A market that was penetrated in the 1990’s when many Japanese automakers began to design vehicles to cater to the American influenced market, with large gas guzzlers like the Nissan Armada, Toyota Sequoia and Honda Ridgeline ensured import survival during the SUV years, and most notably even those Japanese trucks and SUV’s suffer from slightly lower fuel economy ratings than the American SUV competitors.

It has been easy for the press to fault American automakers for their lack of vision in developing economy vehicles, and to blame management for not remaining competitive in fuel efficiency technology. However, despite almost a total lack of advertising dollars for large engine SUV’s, compounded by the handicaps of stale, aged-out designs and a decrease of sales incentives offered, the demand for large SUV’s is climbing back to nearly 2008 levels despite continued fuel cost nearing $4.

Over the past 30 years American consumers have voted with their wallets, fuel economy was considerably less important to them than size, safety, reliability and performance. The challenge that lies ahead is not to build smaller, less powerful cars as much as the need to direct energy-saving technology development at the powerful SUV’s and spirited sedans that consumers demand (nada.org).

Because for many Americans the automobile is more than transportation, it is a fashion decision as much as a financial decision, and many Americans have proven for decades that are perfectly willing to pay a premium to enjoy a few more smiles-per-gallon.

Work Cited

Bunkley, Nick. “As Car Owners Downsize, the Market Is Strong for Their Used S.U.V.’s.” New

York Times. 07 2012: n. page. Web. 7 Nov. 2012.

“Side By Side Economy Comparison.” fueleconomy.gov. US Environmental Protection Agency,